In the last really big U.S. financial bust, that of the 1980s, the nature and role of deposit insurance in creating the problems was widely and prominently debated. After the public admission that, on top of hundreds of insolvent thrifts, the Federal Savings and Loan Insurance Corp. was itself insolvent, Congress declared that deposit insurance was explicitly a full faith and credit obligation of the United States. This it had never previously been.

By contrast, the role of deposit insurance in the 21st-century bubble and bust was hardly discussed at all, except to keep increasing FDIC coverage and guarantees. Discussion picked up recently, as it became apparent that the FDIC's insurance fund was dramatically shrinking. Now that the FDIC has announced that it is insolvent — i.e., its net worth is negative — naturally it has become a hot topic. But it has not yet reached the point, as it did 20 years ago, of questioning the nature and wisdom of government deposit guarantees as a policy matter.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.