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Comment by hcknwscommenter | Hacker News Reader

I don't understand what you are saying. We do have free market banking. Are you suggesting totally unregulated banking would work better? Literally we tried that, it was a huge contributor to the great depression.

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We do not. A banking company recently applied for a banking license to provide full reserve banking ('narrow banking') and their license denied. The government makes it illegal to make a bank immune to failure when they contract supply.

>was a huge contributor to the great depression.

... the great depression happened under a central bank system, within 15 or 20 years of this industry becoming far more regulated.

Under a central bank system that did not have FDIC insurance. You are deliberately eliding my point. Not cool. And the idea that a completely free market banking system where "narrow banks" can literally compete with the Fed makes any sense in the modern world is insane. Go to Somalia. Have fun staying alive and keeping any of your money.

On the contrary, FDIC encourages more reckless banking. Customers chase riskier high interest deposits knowing they cannot lose the deposit and that the 'insurance' is already baked in at a public loss if their gamble loses. The customer has little incentive to monitor underlying banking of these insured funds. This isn't just my words, the fdic has written of the moral hazards themselves. And the same principle applies to the central bank encouraging risky bank behavior by bailing them out as a lendor of last resort.

Most people have better things to do than individually monitoring the underlying banking of insured deposits. And they lack the expertise to do so anyway (I certainly wouldn't know how to accurately price or create a CLO, some complex structured note, swap, CMBS transaction, etc.). That's why we have regulators, and the benefit/cost ratio is phenomenally high.

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