2023-03-15 — nytimes.com
... many academics agreed that the plan was more about preventing a broad and destabilizing bank run than saving any one business or group of depositors.
"Big picture, this was the right thing to do," said Christina Parajon Skinner, an expert on central banking and financial regulation at the University of Pennsylvania. But she added that it could still encourage financial betting by reinforcing the idea that the government would step in to clean up the mess if the financial system faced trouble.
"There are questions about moral hazard," she said.
One of the signals the rescue sent was to depositors: If you hold a large bank account, the moves suggested that the government would step in to protect you in a crisis. That might be desirable -- several experts on Monday said it might be smart to revise deposit insurance to cover accounts bigger than $250,000.
But it could give big depositors less incentive to pull their money out if their banks take big risks, which could in turn give the financial institutions a green light to be less careful.
That could merit new safeguards to guard against future danger, said William English, a former director of the monetary affairs division at the Fed who is now at Yale. He thinks that bank runs in 2008 and recent days have illustrated that a system of partial deposit insurance doesn't really work, he said.
"Market discipline doesn't really happen until it's too late, and then it's too sharp," he said. "But if you don't have that, what is limiting the risk-taking of banks?"
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