In my view, inconvenience aside, there needs to be a balance between amounts one would like to see insured by the FDIC and amounts that can reasonably be covered given the FDIC's resources. Increased FDIC premiums might allow for greater resources so as to increase the insurance limits, but the impact of such premia e.g., reduced interest rates on deposit vehicles, might drive customers to alternative financial institutions where funds are not insured.

The incentive for diversification, because it reduces risk exposure, is a good thing. The IndyMac experience highlights anew the point that is often ignored that the benefits of diversification outweigh the costs of inconvenience. Although from a personal perspective I very much hope that the terms of IndyMac's resolution will greatly limit, if not fully eliminate, the losses for the uninsured depositors, from an economic perspective it needs to be noted that moral hazard, that would arise from a situation in which a failure to diversify is wholly compensated, might have adverse consequences of its own.

Furthermore, if there is sufficient demand in the future for let's say a premium bank deposit insurance vehicle that would cover amounts beyond FDIC limits, one might witness insurance companies developing and marketing such vehicles on a wider basis. The key questions would concern risk exposure for the insurance companies, whether a sufficient number of people would be willing to purchase such coverage at rates that would enable the insurance companies to earn a profit.

Moreover, in the wake of the implosion of the recent housing bubble, regulators might do well to limit the share of any bank's loan portfolio that can be comprised by any single loan category e.g., real-estate-based (commerical, residential, and mortgage-backed securities), etc. Experience following the S&L crisis of the 1980s and the evolving post-real estate bubble banking challenges might well provide some reasonable understanding as to constraints that would provide better protection in a statistically significant fashion.

A gradual and modest increase in reserve requirements might also help ensure that financial institutions are better capitalized.

Sharply tightened standards that substantially reduce the practice of maintaining significant off-balance sheet vehicles and requirements that items be based at the lower of face value or market (not model) value with a sizable "haircut" for illiquid items, could also create better transparency and bring about much improved risk management.

Originally Posted by Sergeant Stinger1 - And just to think I gave you my FIRST S.S.1 Star award! - Ah, your still ok in my book!

Originally Posted by DeeJayH any idiot who has 500,000 in a bank account, at todays interets rates, DESERVES to lose it

Originally Posted by metreon Why? Alternatives offer better returns at the price of greater risk. Therefore your statement short-sightedly ignores the total cost of an investment. Banks are intended to be havens from risk, so people placing their money there are doing so for a reason. Elderly can not rely on long-term average returns on their capital, since they can not forecast when a medical emergency or such might require a short-term need of it.

Not many investments yield such a return over the long-run. The overall stock market has done so in nominal terms, but the past decade has not been good for stocks.

Taking the S&P 500, on July 16, 1998, the S&P 500 closed at 1,183.99. Today, ten years later, it closed at 1,245.36. That's just 5.2% higher. In nominal terms, that would translate into an annual return of +0.5%.

Once one factors in inflation, the real return is decidely negative. The 10-year return amounts to -21.8%. That comes to a return of -2.4% per year in real terms.

That is solely the price appreciation. One must include dividends. If one considers the average annual dividend of 1.4% paid during that timeframe, then the S&P 500's total annual return comes to 1.8% and its annual real return remains negative at -1.1% per year.