Tyler Cowen: prediction

Transcript context

…Exactly. Sorry. Actually, the Sheila Bair proposal was to insure all uninsured deposits. We could talk about that. I think a very sensible version of that would insure business transaction accounts, or operational deposits, as FDIC calls them. Basically, small-business working capital, payroll, the account from which they make payroll, and so on. I think those are a real issue at the moment. I think insuring all deposits is something you only do when you’re absolutely desperate. Hopefully, we won’t get to that. 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.…

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