Carrot and Stick: Federal Deposit Insurance Is a Trap for Community Banks

Norbert Michel

Most members of Congress, understandably, want to ensure that even people living outside of the biggest US cities have access to banking services. They see the “big banks” as a threat, especially amid the banking industry’s long-term trend toward consolidation. In fact, politicians from both parties regularly express concern about the small number of new bank formations since 2010. They also worry that people are leaving smaller banks because they believe larger banks will always be bailed out in times of trouble.