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Proponents of the rule suggest providing government

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Unformatted text preview: subsidies for corporate risk taking is likely against public interest and encourages a moral hazard. • FDIC Insurance: In pursuit of maintaining a positive fund balance and steady assessment rates throughout economic and credit cycles and banking crises, the Dodd-Frank Act gave the FDIC authority to revise how banks are charged for DIF payments. The new rules that became effective in February 2011 are more forward-looking, using risk-based assessments on what the banks hold in assets minus their tangible equity (a better measure of the fund’s risk than bank deposits alone). Additional risk premium adjustments are made for banks with higher risk factors, such as assets with unsecured debt “credit cards” or less stable balance-sheet liquidity from “transitory” brokered deposits. Although these new risk-based charges make intuitive sense, they fail to capture premiums for other transactions with similar risk characteristics, like “transitory” internet solicitations for deposits. As DIF assessments evolve, banks 2012 C...
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This note was uploaded on 02/11/2013 for the course MGMT 231 taught by Professor Yu during the Spring '13 term at Bauder.

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