Requiring banks to issue long-term debt could make customers safer

Changes to deposit insurance schemes are being discussed by bank watchdogs following recent bank failures. One option that has been put forward is forcing more US banks to fund more of their loans and investments by issuing long-term debt rather than through deposits. This acts as an extra layer of protection for customers, meaning long-term debt could make for a safer banking system and a cheaper alternative to extending deposit insurance. The author argues that customers and shareholders already fund deposit backstops through periodic bills from the FDIC, and relying more on loss-absorbing debt could make such giant ad-hoc bills less likely in the future.

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