> The industry eats the cost, not the FDIC, which funds it through industry taxes.
One problem is that FDIC does an insufficient job at charging banks of different riskiness different premiums.
Privately organised deposit insurance without an (implicit or explicit) government backstop would avoid that problem.
> You can be a boring bank and most likely mint profit for yourself for eternity, while also being seen as a positive actor in your city!
Banks caring about individual cities is a weird Americanism. Mostly stemming from their long standing bans on branch banking.
Minting profits for eternity is nice, but having money right now is also nice. A company can use their 'cost of capital' metric to make a rational decision between the two.
> The only people who aren't satisfied with such a set up are the same "Gotta grift everyone" silicon valley style assholes who think an economy is an idle game and they have to have the highest number because they are smartest and bestest.
Leave the ad-hominem at the door, please.
Managers have a fiduciary duty to the owners of the company. For most companies, and especially most banks, that means they have a duty to make money for the shareholders. (Shareholders can have other goals that they can task management with; making money is just the default.)
If managers shirk their fiduciary, shareholders can sue them. And that includes when they are shirking making the right trade-off between long term profits and short term profits:
Use your cost of capital to calculate the present value of future cash flows. Choose the path that has the largest present value.
If interest rates are high enough, it _is_ economic rational to chop down the entire forest for wood today, instead of harvesting it sustainable.
Btw, most banks do 'gamble'. They just differ in how much they gamble and on what.
One problem is that FDIC does an insufficient job at charging banks of different riskiness different premiums.
Privately organised deposit insurance without an (implicit or explicit) government backstop would avoid that problem.
> You can be a boring bank and most likely mint profit for yourself for eternity, while also being seen as a positive actor in your city!
Banks caring about individual cities is a weird Americanism. Mostly stemming from their long standing bans on branch banking.
Minting profits for eternity is nice, but having money right now is also nice. A company can use their 'cost of capital' metric to make a rational decision between the two.
> The only people who aren't satisfied with such a set up are the same "Gotta grift everyone" silicon valley style assholes who think an economy is an idle game and they have to have the highest number because they are smartest and bestest.
Leave the ad-hominem at the door, please.
Managers have a fiduciary duty to the owners of the company. For most companies, and especially most banks, that means they have a duty to make money for the shareholders. (Shareholders can have other goals that they can task management with; making money is just the default.)
If managers shirk their fiduciary, shareholders can sue them. And that includes when they are shirking making the right trade-off between long term profits and short term profits:
Use your cost of capital to calculate the present value of future cash flows. Choose the path that has the largest present value.
If interest rates are high enough, it _is_ economic rational to chop down the entire forest for wood today, instead of harvesting it sustainable.
Btw, most banks do 'gamble'. They just differ in how much they gamble and on what.