Federal Deposit Insurance was opposed by FDR (citing what we'd now call moral hazard—guaranteed deposits would encourage reckless banking) and by large banks, and had previously failed at the state level where insurance funds went broke encouraging bad banking; it passed by the thinnest margins, pushed by small banks who wanted to appear as solid as big banks to stop depositors fleeing to sounder institutions—another triumph of the small-bank lobby.

factualpending

Speaker

Larry White

Evidence Quote

FDR... said... is an absurd idea because of moral hazard he didn't use that phrase but he said if every bank knows it's gonna get its deposits always guaranteed it's gonna make reckless investments

Source

Larry White on Hayek and Money 02/01/2010EconTalk
Created: 6/17/2026, 10:31:20 AM

My Notes

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