Comments on: Your Take: FDIC Sets Bank Interest Rate Caps

By: William

William — Mon, 16 Aug 2010 15:03:56 +0000

While well intended, the rule is not based in the real world. What will happen to existing customers (of banks to ehich this would apply)is that they will find their banks either precipitously dropping rates (often without notice) or being unable to accept funds into accounts that had been paying a somwhat advantageous rate, causing intended deposits to be turned away, thus creating operational nightmares for bank depositors. From my conversations with a number of bankers, auditors and examiners (who choose to remain anonymous) I am convinced there is an unwritten mandate to squeeze smaller banks out of business, leaving only the ‘too big to fail banks’ that will either become semi-nationalized or buoyed by taxpayer dollars.

By: Vic

Vic — Fri, 19 Jun 2009 17:26:10 +0000

Doesn’t make any difference to me. Credit Unions are giving better rates anyway and are not governed my the FDIC.

By: Andrew

Andrew — Thu, 18 Jun 2009 17:59:02 +0000

You have it backwards. Capping the rates will prevent failing institutions from offering high rates to attract new depositors, and then using the new depositors’ money to pay off the old depositors who are fleeing for higher rates elsewhere. Besides, the rate caps apply only to insolvent or near-insolvent institutions. Strong banks are free to pay what they wish. Of course, they don’t pay much because they don’t have to. That’s the free market at work.

By: DDFD at DivorcedDadFrugalDad

DDFD at DivorcedDadFrugalDad — Wed, 17 Jun 2009 12:46:34 +0000

I am for free enterprise– capping the rates is wrong.

My feeling is that capping the rates will speed the demise of some institutions which I feel the regulators want. I think they are using the current weak economy to selectively clean house . . .

By: thomas

thomas — Tue, 16 Jun 2009 03:18:09 +0000

I wish they would just stay out of it. They have their hands full already with FDIC and whatnot.

As also mentioned, online banks have much less costs and can offer higher rates than B&M stores.

By: Bradford

Bradford — Fri, 12 Jun 2009 19:01:20 +0000

Just how many banks would be affected? Elsewhere I read (on the BankDeals site?) that something like 248 out of 8200 institutions would currently qualify for the cap, but memory made have played tricks with those numbers.

Maybe there’s something to say for watching bank ratings and their criteria.

By: Jim

Jim — Fri, 12 Jun 2009 18:47:29 +0000

Hi Chris, thanks for the clarification!

By: Andrew

Andrew — Fri, 12 Jun 2009 18:08:57 +0000

Provided that issuers aren’t allowed to raise your rates retrospectively (which they were until the new law), the market can set credit card interest rates just fine. If you know that your rate is going to be x% and it will take you y years to pay off the debt, you can factor that into your decision to take on the debt or not.

By: Chris S

Chris S — Fri, 12 Jun 2009 17:54:30 +0000

If you read the press release, the first line says the FDIC is amending the rule, not enacting a new one.

By: Chris S

Chris S — Fri, 12 Jun 2009 17:53:10 +0000

THIS IS NOT A NEW RULE, JUST AN AMENDMENT TO CLARIFY HOW TO CALCULATE DEPOSIT RATE RESTRICTIONS. I am a bank examiner, and rate restrictions for institutions that are less than well-capitalised have been in place since the late 80′s, early 90′s and were enacted as part of Prompt Corrective Action legislation. However, since times have been relatively good for the past 20 years, no one has really had to apply the rule.

The regulation was amended to clarify how to calculate the restrictions because, as I know from experience, the original rules were very vague and difficult to apply.

By: Wizard Prang

Wizard Prang — Fri, 12 Jun 2009 17:26:06 +0000

So where is the rate cap on Credit Card interest?

Didn’t think so

By: Lucy

Lucy — Fri, 12 Jun 2009 16:21:52 +0000

I must be the only one who hates the new FDIC imposed new rates. Why does no one else seems to object to the (very) low rates forced on banks effective Jan 2010? It’s tough being a saver when the FDIC further cuts down deposit rates when they’re already extremely low.

I’m not saying the FDIC is wrong to impose rate limitations, mind you. Just the fact that the agency is not distinguishing between internet vs. B&M, and regular accounts vs. rewards account. So, savers end up with a raw deal.

By: Andrew

Andrew — Fri, 12 Jun 2009 15:51:28 +0000

I think this is a very good idea. In the absence of insurance, markets would do a very good job of setting interest rates; those banks that had a higher risk of failing would have to offer higher rates to entice depositors. But now, there’s zero risk that I’ll lose my money in any bank, so I just put it where it pays the most, regardless of how sound that bank is. It’s a recipe for disaster.

By: nickel

nickel — Fri, 12 Jun 2009 13:52:01 +0000

Interesting. While the intention seems to be to reduce risk to the FDIC (by discouraging last minute deposits in bad banks), it looks to me like this has the potential to actually trigger the death of those banks.

In the wake of the stress tests, a number of banks have been told to raise capital. How are they going to make that happen if they can’t make their offerings more competitive?

By: Jim

Jim — Fri, 12 Jun 2009 12:43:03 +0000

The underlying debt is still there regardless of the interest rates, so while the cap is probably a good idea, I don’t see it solving the underlying problem. I agree with you though, the current approach appears to be pulling the band-aid off slowly when a lot of people want us to just rip the dang thing off quickly.