Fed walking a financial stability ‘tightrope’

Federal Reserve

US regulators are walking a tightrope in their use of the “systemic risk exception” for deposit insurance, several academics tell Central Banking.

The Federal Reserve and the Federal Deposit Insurance Corporation can use the exception when they judge a bank failure potentially threatens the entire banking system. When it invokes the exception, the FDIC insures 100% of the bank’s deposits, far above the usual $250,000 limit for each deposit.

Experts disagree over whether the Fed and FDIC’s

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