Why any subsidy?
Reader comment on: Bloomberg on Banks
Submitted by Joe Vencil (United States), Jun 21, 2012 07:47
There is no good rationale for government sponsored deposit insurance. It is a subsidy to banks at the expense of the capital markets and has led to the banking sector being much larger and more concentrated than it would otherwise be. This creates a system with low risks in normal times and the potential for catastrophic collapse in unusually bad times. The market, however imperfect, is always dispassionate and apolitical, unlike committees of men (women) like the FDIC or the Fed, and better at pricing risk and allocating scarce capital.
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The Future of Capitalism replies:
For what it's worth, defenders of the system argue it isn't a subsidy because they pay premiums on the insurance that cover any payouts.
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