Arnold Kling  

Some History of Deposit Insurance

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Arpit Gupta writes,

federal insurance had the benefit of further entrenching the power of small banks, which would otherwise be a competitive disadvantage relative to their larger banking peers. We adopted the FDIC not as a part of a well-thought out plan to stem banking problems based on past evidence; but rather to satisfy the small bank lobby responsible for banking fragility in the first place.

More recently, with "too big to fail," the government has tipped the scales in the other direction.

Read Gupta's whole post.

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COMMENTS (1 to date)
Floccina writes:

Deposit insurance seems to me to be an odd way to address the problem that the last people to get to the bank can be without there entire deposits at least for a while. A mechanism where everyone would get par of of there money seems to me like it would be better. IMO we need a system where when a bank goes under shareholders, debtors and depositors share the pain and where other banks are strengthened by the failure if one bank.

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