And these two variables - capital strength and overall examiner rating - do not capture all the risk that institutions could create for the insurer. The Board believes that the FDIC should be free to establish risk categories on the basis of any economic variables shown to be related to an institution's risk of failure, and to impose premiums commensurate with that risk.
Although a robust risk-based premium system would be technically difficult to design, a closer link between insurance premiums and the risk of individual institutions would reduce moral hazard and the distortions in resource allocation that accompany deposit insurance.