Under the existing system, if a bank fails due to bad investments, a third party (the taxpayer) will reimburse the savers who have money invested with that bank. This scheme is called deposit insurance, or the ‘Financial Services Compensation Scheme’ in the UK. In the USA a similar scheme is run by the FDIC (Federal Deposit Insurance Corporation). Deposit insurance removes the incentive for a bank’s creditors (i.e. savers and investors) to monitor the bank’s behaviour. positivemoney.org/2013/04/ending-the-too-big-to-fail-problem-for-good/
Posted on: Wed, 17 Jul 2013 14:20:34 +0000
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