Simon Johnson: belief

Transcript context

…It seems to be that’s the world moving forward. If we insure all deposits but SVB, then they’re all insured. Then those banks will take a lot more risk, and the problem gets bigger, and you raise deposit insurance premia. More funds move outside the banking system to, say, money market funds, which are less regulated. Doesn’t it just postpone the problem and make it bigger? It may do. I don’t think we’re going to get a consensus to insure all deposits, Tyler, for exactly the reasons you’re flagging. I do think that we might leave individual deposits at $250,000, where it is now. And we might have a sensible design of an insurance scheme for small-business transaction accounts, because I think if you have a nine-person startup, telling them to spend time on financial management when they’re trying to build a new hot sauce company — whatever it is — it’s a distraction and rather unfair. The FDIC already has this category called transaction deposits, operational deposits. They could use that, and we can carve that out. And then, yes, you want to avoid a situation where hedge funds put money on deposit with crazy banks that go off and take crypto risk or other risks that are not well managed. Let me tell you my worry and see what your response is: that once you start playing the credibility game, which ultimately you can’t avoid, that even letting a truly small bank — much smaller than SVB — fail, it sends a signal. And then, since about half of the deposits in US banks are not FDIC-insured, it doesn’t matter how small the bank is; the signal is, in a sense, infinitely large once it happens once. Is that a problem? If so, how do we get around it?…

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