Re:Reasons the banking crisis isn’t a repeat of 2008
by Jochim on Saturday March 25, 2023 @09:21AM
(#35302382)
While I largely agree, it could be argued that banks engaging in risky behaviour might attract depositors with higher interest rates than a more responsible bank.
If depositors know that their money is fully covered, you incentivise them to move their money from responsible banks to irresponsible ones. It's easy to imagine a knock-on effect where responsible banks are incentivised to behave less so in order to retain custom, with the whole system becoming more fragile as a result.
Depositors don't stand to benefit from a bank engaging in stupid risky bets with depositor money.
Investors do (on the upside of those bets).
This is why depositors should (and do) have moral priority for their money.
Investors also are able to directly control the degree of stupid risk-taking behaviour taken by the bank, by virtue of their control of the board. Depositors have no such leverage.
If you make depositors (or the public at large) pay for the sins of the bank's management, you get a classic conflict of interest problem. If you make investors pay, it goes a long way towards aligning their interests with keeping the bank running well.