The Federal Reserve Bank of Minneapolis seems to have taken that definition to heart. The banking system is healthy, and the public is hardly clamoring for change. The push may be quixotic, but the bank is on the right track. Now, when times are good, is an appropriate time for engineering changes in deposit insurance. First, a little background.
Big banks have complex financial links throughout the country and the world economy.
Their exposure would be limited, say, to a maximum of 20 percent of their account. The discipline of the marketplace would exert pressure on bank managers to operate in a safe and sound way. Federal deposit insurance works. While protecting depositors, the insurance can encourage bankers to take on more risk than they otherwise would. The moral hazard calculus played a role in the savings and loan debacle of the 1980s.