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Thursday, January 28, 2010

The “FDIC lotto” reason banks aren’t lending

The “FDIC lotto” reason banks aren’t lending | Analysis & Opinion | Reuters: "The problem here is that healthy banks end up competing with each other to have the largest capital surplus and therefore the greatest chance of being anointed in this manner by the FDIC. If everybody was lending, the FDIC would still have to place failed banks’ assets and deposits with someone. But instead we get the opposite corner solution, where nobody is lending — except, presumably, for banks which are close to failure and need all the interest income they can get. I wonder whether the FDIC has anybody thinking about how to counteract this syndrome."

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