Private Insurers to Cushion Federal Deposit Insurance

Abstract

This research describes the views on the existed mechanism of the federal deposit insurance in the United States. It criticizes this deposit insurance system is so much involved with the circumvention from the government, exploiting deeply the government’s reserves that contributed by the U.S. taxpayers, possibly causing the conflicts of interests in the bank’s corporate governance, hardly ending the government’s bailouts in future’s crisis, and incidentally nationalizing of private banks. The herein analysis explains how the lack of a risk-reducing mechanism in the existed federal deposit insurance system nurtures the moral hazard in banking industry, critically contributes to the addressed problems. It further discusses on the government’s circumvention to the banking system through the federal deposit insurance likely illustrates a step the government made into the alliance of itself and the businesses. On the other hand, such circumvention also makes the banks extremely distinctive with extraordinary privileges despite fact the banks are generally the business entity like any and all other private entrepreneurs in the U.S. As a result, this research is aim at introducing a solution to not only protect the legitimate rights of depositors, but also to push the banks back to their private business environment, in equal to other business sectors. The solution further aims to prevent the depletion of American taxpayers’ money used by the government in rescuing banks. So this research’s first part briefly describes typical characters of the existed mechanism of the federal deposit insurance. The second part subjectively addresses the remained problems in the existed system deposit insurance. This research introduces in its third part a solution of having private insurers to cushion in federal deposit insurance, before allowing the insured depositors reach up the federal insurance funds, and making a buffer to the alliance of the government and the businesses.