Andreas Wesemann asks what government-backed deposit insurance is for
The banking system would be stronger without it, argues the investment banker
DURING AMERICA’S “mini banking crisis” in March, when Silicon Valley Bank (SVB) and Signature Bank collapsed, the Federal Deposit Insurance Corporation (FDIC) used an emergency “systemic-risk authority” to provide 100% protection for all depositors of both banks. Since then, regulators in America and elsewhere have pondered the role of deposit insurance in dealing with the consequences of banking meltdowns. As the world contemplates the latest scramble to save a tottering lender—San Francisco-based First Republic Bank, most of which is to be taken over by JPMorgan Chase—central banks on both sides of the Atlantic are considering calls to make deposit insurance much more generous to avoid a more general crisis.
From the May 6th 2023 edition
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