Banks would then have to charge more when they lent these funds to home buyers and other borrowers. By making bank deposits safe, deposit insurance helps keep interest rates low. A retiree who doesn't want to gamble on stocks or other risky investments should be able to buy a handful of federally insured certificates of deposit to be sure of meeting living costs for several years. You shouldn't have to go to two or three banks to do that. But that disaster had many causes beyond deposit insurance, and there has been lots of sound banking reform since then.
Deposit insurance is inexpensive, and it is paid for by the banks.
It makes sense to increase coverage to keep up with the cost of living.