The odds that the economy will experience a liquidity squeeze have increased. Comments to the FDIC were overwhelmingly supportive of its proposal for banks to prepay the next 3 years of insurance premiums. Both the American Bankers Association and the Independent Community Bankers Association (ICBA) supported the proposal. The ICBA suggested shortening the period from 3 to 2 years.
Interestingly, the ABA agreed with the FDIC contention that banks have sufficient excess reserves to pay the premium without it having a negative impact on loans and liquidity. While there were a handful of comments pointing to a likely shortfall of liquidity, my comments were the only ones that spoke about the monetary implications of this move.