"Deposit Insurance Undermines Bank Stability" by Mark Calabria (Cato Institute: Commentary)

"Deposit Insurance Undermines Bank Stability" by Mark Calabria (Cato Institute: Commentary): "f the 117 million households in America, only about 10 million have total bank deposits above $100,000, or less than 9 percent of all American households. These same families also have incomes of over twice the median, putting these households in the top 20 percent of earners. Nor are these households without significant wealth, with total median holdings of financial assets alone of almost $600,000. Most households with deposits above $100,000, given their considerable financial wealth, demonstrate sufficient sophistication to provide monitoring of a bank's financial condition. Even if families with bank deposits above $100,000 were to suffer a loss in deposits resulting from a bank failure, the typical family in this group has both considerable income and wealth to buffer such a hit. In contrast, the typical, or median, American household, has only about $6,400 in bank deposits, well below the previous ceiling of $100,000."

"A recent academic study across over 150 countries found that, all else equal, those countries with more generous deposit insurance schemes also suffered more frequent banking crises."

"Few relationships in economics have been found in so many different settings as the link between expanded deposit insurance and bank instability."

"FDR vocally opposed the creation of deposit insurance and threatened to veto the Glass-Steagall banking bill over its inclusion, saying it "would lead to laxity in bank management and carelessness on the part of both banker and depositor." "