Many banking experts hold that deposit insurance induces banks to take unwise risks. However, the real problem with deposit insurance is that it shifts the cost of regulatory error to the nations surviving banksa problem preventable with privatized banking regulation and cross guarantees.
Regulatory Moral Hazard
The Real Moral Hazard in Federal Deposit Insurance
By Bert Ely
This
article
appeared in
the Fall 1999 issue of The Independent Review.
Antitrust, Competition, and MonopolyBanking and FinanceBanking Law and RegulationBusiness and EntrepreneurshipEconomyLaw and LibertyPublic Choice