NetBank Shuts Down, ING Takes Over

Online bank NetBank was closed by the federal regulator today. FDIC arranged its takeover by ING Direct. This is consistent with what FDIC usually does, as described in my previous post What Happens When a Bank Goes Out of Business.

1,500 unlucky customers have $109 million over the FDIC insurance limit. That’s an average of more than $72,000 each! I don’t know what these customers were thinking. The trouble at NetBank was known for quite a while. Previously NetBank announced they would merge with EverBank. But the merger collapsed.

For more details, see FDIC announcement.

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Comments

  1. Harry Sit says

    I don’t think it should be raised. 100% coverage all the way to $100k by FDIC creates a huge moral hazard problem. It rewards bad banks like NetBank with fresh cash and encourages the race to the bottom.

    I think FDIC insurance should have multiple levels. Well run banks get higher coverage, lower deductible and/or copay. Badly run banks get lower coverage, higher deductible and/or copay. That way banks will have incentives to run a tighter ship.

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