Monitoring the Megabanks
How regulators can handle the new banks:
FEDERAL DEPOSIT INSURANCE
Current laws insure depositors against $100,000 in losses at a failed bank, but regulators often pay more. If the government observes the limits, depositors will be choosier about where they bank.
CAPITAL STANDARDS
Currently, regulators impose largely uniform standards for bank capital. Banks should be allowed to determine how much capital to hold--and subjected to harsh penalties if losses exceed expectations.
BUFFER TAXPAYERS
Require banks to hold new uninsured bonds as part of their capital reserves. This would reduce the risk of taxpayer losses and create new watchdogs--the bondholders--who would care more about solvency than profit growth.
PRIVATE BANK INSURANCE SYSTEM
As banking becomes more global and digital, the current system of federal oversight is becoming outmoded. Solution: Allow banks to purchase deposit insurance from private guarantors.
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