Nation Must Address Deposit Insurance Problem

By Talton, Jon | THE JOURNAL RECORD, August 10, 1990 | Go to article overview

Nation Must Address Deposit Insurance Problem


Talton, Jon, THE JOURNAL RECORD


Incredibly, more than five years after trouble first showed up in the savings and loan industry, most of the fundamental causes of this costliest scandal in history are still unfixed.

With a bailout bill of perhaps $300 billion or more facing taxpayers, we have no assurance that such a catastrophe will not happen again, perhaps on an even larger scale.

Deposit insurance, one of the major causes of the thrift scandal, remains a ticking time bomb.

Federally insured accounts helped encourage savings institutions to take on risky investments. If the investments sunk, the thrift executives knew the government would bail them out thanks to the $100,000 insurance limit on each account.

This is far removed from the original intent of deposit insurance, which began in 1934 to protect small depositors and restore confidence to a banking system ravaged by the Great Depression. Oiginally accounts were insured up to $2,500.

For years the system worked well. The banking and thrift industries were sleepy bastions of conservatism working on the 3/6/3 formula: borrow at 3 percent, lend at 6 percent and be on the golf course by 3 p.m.

But by the '70s all that was changing. Inflation destroyed the comfortable interest rate certainty of the past, and opened the way for competition from other financial services firms. Suddenly banks and thrifts faced something new: competition.

The deregulation begun in 1980 was intended to let these institutions better compete and offer more choices to consumers. It succeeded in both these areas, but also opened up taxpayer to a dangerous liability. As banks and thrifts were allowed into new businesses, deposit insurance was not only left in place, it was increased from $40,000 to $100,000 per account.

This helped move deposit insurance from something intended to protect small depositors to a subsidy for large investors and a crutch for desperate executives.

Finally, the fundamental conundrum about deposit insurance - foreseen back in the '30s - surfaced.

On the one hand, deposit insurance maintains stability in the banking system. But on the other, it erodes the market discipline that comes when business people know they are risking their own money, and leaves taxpayers exposed to huge losses. …

The rest of this article is only available to active members of Questia

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Buy instant access to cite pages or passages in MLA 8, MLA 7, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

(Einhorn 25)

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Note: primary sources have slightly different requirements for citation. Please see these guidelines for more information.

Cited article

Nation Must Address Deposit Insurance Problem
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Help
Full screen
Items saved from this article
  • Highlights & Notes
  • Citations
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Style
    Citations are available only to our active members.
    Buy instant access to cite pages or passages in MLA 8, MLA 7, APA and Chicago citation styles.

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

    1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

    Cited passage

    Thanks for trying Questia!

    Please continue trying out our research tools, but please note, full functionality is available only to our active members.

    Your work will be lost once you leave this Web page.

    Buy instant access to save your work.

    Already a member? Log in now.

    Search by... Author
    Show... All Results Primary Sources Peer-reviewed

    Oops!

    An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.