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Economic Principles and Deposit-Insurance Reform

05.15.89

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The current system of federal deposit insurance subsidizes risk-taking by depository institutions, resulting in increased failure-resolution costs and decreased efficiency for the entire financial system. Reforms to the deposit-insurance system should consider both the policy objectives and the attendant economic consequences and costs of deposit guarantees.

The current system of federal deposit insurance subsidizes risk-taking by depository institutions, resulting in increased failure-resolution costs and decreased efficiency for the entire financial system. Reforms to the deposit-insurance system should consider both the policy objectives and the attendant economic consequences and costs of deposit guarantees.

Suggested citation: Thomson, James B., 1989. "Economic Principles and Deposit-Insurance Reform," Federal Reserve Bank of Cleveland, Economic Commentary, 05.15.1989.

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