FDIC Restricts Interest Rates Banks Can Pay

In the continuing encroachment on free markets, the FDIC is now dictating in certain circumstances what interest rates banks can pay out.

The FDIC voted to bar a bank with insured deposits from paying interest rates that "significantly exceed" prevailing market rates if the bank is deemed not well capitalized.

The new rule requires the FDIC to post a "national rate" on its website, which bankers would have to refer to in deciding whether their offered rate qualifies as reasonable. If a bank feels that local conditions require an adjustment, it can appeal to its regulators for an exemption.

This is simply another control point for the FDIC. A bank that is not in the good graces of the FDIC can be squeezed by telling it that its rates "significantly" exceed prevailing rates, on the other hand it can let the higher rate slide for a favored bank.

Only in a free market, without the moral hazard of FDIC insurance, can it be deemed what is and is not a free market rate. There may be circumstances that a given type of bank in a certain location where the free market will support a higher rate.

The regulation march continues.