Today it is common Deposit insurance System: In the European Union, depositors are compensated up to €100,000 and in the US up to $250,000 if the bank gets into trouble. At the same time, it is a fair suggestion that if we keep our money in the bank, that in itself is not a risk. Although the current deposit insurance amount covers a large proportion of individual depositors, and this was also the goal of the regulation, it is still very risky from the point of view of the banking system if the holders of larger uninsured amounts flee.
Withdrawal panic
Although the bank failures in the past few days were caused by internal bank operational problems, the collapse was a direct result of panic-like deposit withdrawals, which is understandable on the part of depositors. According to Bloomberg, US financial authorities are now investigating what if all deposits will cover Insurance, because in this case no one will be afraid more than once, and therefore there will be no more deposit withdrawal attacks, and underperforming banks will have time to sort themselves out, or if that doesn’t work, then find a buyer for them, and they won’t have to be done in full overnight One or a weekend until it is made as it is now.
There is not much actual download
Of course, at first glance it seems that this would be an unacceptable burden for the state, but in reality the situation is not so simple. Only a very small percentage of the total money deposited in a bank falls victim to bank failures, and in such cases the practice is increasingly made to pay the victims more than the amount of the deposit security.
The problem from the point of view of banking operations is that panic over deposit withdrawals makes banking operations impossible even in well-functioning financial institutions, because they lend from deposits. If comprehensive insurance prevents withdrawals, this problem has already been resolved, and the actual amount to be paid will not be more, even though there is a huge amount under insurance.
It is a matter of responsibility
Only one problem emerges, and it does exist: in this system there is nothing to stop the potentially irresponsible behavior of the bank’s management, that is, while they can go bankrupt due to bad operations, like any private company, the resulting damage rests with the state or other financial institutions , which is not permitted.
It is difficult to resolve this contradiction, and perhaps the strict rules of banks and investment banking houses, which were adopted after the 2008 crisis, must be observed in all cases, and not relaxed or even canceled for a longer period. Trouble free periods. If this were to be implemented, comprehensive deposit protection would be more acceptable, because it would rarely have to be used.
