Some History of Deposit Insurance
By Arnold Kling
federal insurance had the benefit of further entrenching the power of small banks, which would otherwise be a competitive disadvantage relative to their larger banking peers. We adopted the FDIC not as a part of a well-thought out plan to stem banking problems based on past evidence; but rather to satisfy the small bank lobby responsible for banking fragility in the first place.
More recently, with “too big to fail,” the government has tipped the scales in the other direction.
Read Gupta’s whole post.