Banking has become a captive of government regulatory micromanagement that cannot keep up with rapid changes in a financial world driven increasingly by electronic technology. Government regulation has become counterproductive and harmful to good banks and thrifts as well as to America's international competitiveness. Regulation now shapes banking strategy, which occasionally creates dangerous herd effects. Let private markets set risk-sensitive deposit insurance premiums, based on leading indicators of banking risk, thus discouraging unwise banking practices. These guarantors have the strongest incentive to minimize losses and should therefore control the risks that they have assumed.
Numerous safeguards protect taxpayers against another deposit insurance bailout.
Every guarantor must be guaranteed with regard to its cross-guarantee obligations. Risk dispersion rules require a minimum number of guarantors for any one bank or thrift and limit both the aggregate risk assumed by a guarantor and the amount of risk that any one guarantor can assume for any one bank or thrift. Cross-guarantee contracts cannot be canceled unless the guaranteed bank or thrift first obtains a replacement contract or is acquired by another guaranteed bank or thrift. Once guaranteed, no institution can operate without a cross-guarantee contract in place. Each syndicate retains an agent, called the syndicate agent, to monitor the financial condition of the bank or thrift it has guaranteed to ensure adherence to all contractual terms and to act as a buffer to protect the competitive secrets of the guaranteed institution.