The distributional impact of foreign deposits on federal deposit insurance premia

Abstract

Rapid growth of deposits in U.S. foreign bank branches and current U.S. government policies have combined to create a new inequality in the deposit insurance system. Our research shows that smaller banks are substantially subsidizing the insurance costs of the larger, multinational institutions. When insurance premiums are viewed in the context of an implicit tax, it is highly regressive with the wealth transfer growing over time. Recent reform proposals do not fully address important international influences and therefore underestimate the scope of the problem.