Opinion | The FDIC Guarantees Instability

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Opinion | The FDIC Guarantees Instability
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From WSJopinion: With inflation still painfully high and unemployment at a six-decade low, the Biden administration would be wise to restore proper incentives by reverting to the usual system of limited deposit insurance, write Dan Katz and SteveMiran

Wonder Land: Whether it's the border, the economy or crime, the progressive way of governance is that no policy mistake can change—ever. Images: AP/AFP/Getty Images Composite: Mark Kelly

Officials at the Treasury, Federal Reserve and Federal Deposit Insurance Corp. have worked feverishly since March’s run on Silicon Valley Bank to shore up confidence in the regional banking system. Treasury Secretaryimplied that the FDIC would cover all depositors. Rather than stabilize the system, their ad hoc approach has stirred panic.

The problem is that officials’ implied “systemwide” guarantee of uninsured depositors isn’t really systemwide. During the 2008 financial crisis, policy makers created thewhich offered an unlimited guarantee on non-interest-bearing deposit accounts. But the Dodd-Frank Act of 2010 required an act of Congress to backstop uninsured deposits.

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