After reading a chapter of Paul’s End the Fed here at this site, I went searching for a proposal I came across a while ago, that I thought I had saved to my computer, about a way to resolve the problem of bank failures without the use of the FDIC. If memory serves correct, it went something like this:
Require all banks to keep one-tenth of their loans, as a cash reserve, made up entirely of their own bonds, due within 12 months. This would have a stabilizing effect in that the more unstable a bank’s loan portfolio became, the higher the interest rates that they would have to pay on their own bonds, making it more expensive to adopt riskier loans.
Now perhaps the 10% figure could be raised or lowered, but you get the idea.
I must admit that I had never come across this idea before. What do folks here think about it?