Why would a bank increase the FDIC insured amount? I thought the lower the better for consumers and it made it easier when the FDIC amount was low. It seems to me like if they increase the FDIC amount, the amount that is covered, like insurance, would go up and the monthly fees will increase as well. Professor, what are some risks and advantages of FDIC amount increases?

Increasing the FDIC insured amount can have both risks and advantages. Let's explore them:

Risks:
1. Moral Hazard: When the FDIC insured amount is increased, it may create a moral hazard for banks. If banks know that larger amounts of deposits are insured, they may be inclined to take on more risk or engage in speculative activities, assuming that the government will bail them out if they fail. This can potentially lead to excessive risk-taking and instability in the banking system.

2. Cost to the FDIC: Increasing the insured amount means that the FDIC would need to set aside more funds to cover potential bank failures. This can increase the financial burden on the FDIC, which is ultimately funded by banks through insurance assessments. If too many banks fail and the FDIC is unable to cope with the increased demands, it may strain the resources of the insurance fund.

Advantages:
1. Increased Consumer Confidence: Raising the FDIC insured amount can increase consumer confidence in the banking system. More insured deposits give depositors a sense of security, knowing that their money is protected in the event of a bank failure. This can promote stability and prevent bank runs during times of financial stress.

2. Greater Financial Inclusion: Increasing the insured amount can encourage individuals and businesses to keep larger balances in banks. This can be particularly helpful for small businesses and individuals with significant savings, as it provides them with a higher level of protection. It fosters financial inclusion and may incentivize individuals to rely on traditional banking services rather than keeping money outside the formal banking system.

3. Economic Stability: A higher FDIC insured amount can contribute to overall economic stability. By providing a safety net for depositors, it reduces the likelihood of bank runs and the potential for systemic financial crises. A stable banking system improves investor confidence and facilitates lending, which can support economic growth.

It's important to note that increasing the FDIC insured amount does not necessarily translate into increased monthly fees for consumers. The fees banks charge typically cover operating costs rather than the deposit insurance premiums paid to the FDIC. Any changes in fees would depend on various factors, including the bank's business model, market conditions, and regulatory environment.