The proposal would keep weak banks from offering high yield savings accounts with the goal of limiting FDIC exposure. Weak banks sometimes raise the annual percentage yield (APY) they pay on savings accounts in an effort to bring money in, but the proposed rules would take that arrow out of their quiver.
The FDIC says that the limits would only apply to about 2% of banks, so strong banks could continue to pay as much as they want. Critics argue that this moves us one step closer to bank nationalization, and that troubled banks will fail even faster if they have to cut rates.
Instead of setting their own rates, troubled banks would have to stay close to a 'national average' APY. For more details, see Bloomberg's coverage of the FDIC proposal.
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