The Legacy of Deposit Insurance: The Growth, Spread, and Cost of Insuring Financial Intermediaries

Without the Great Depression, the United States would not have adopted deposit insurance. While the New Deal's anti-competitive barriers have largely collapsed become" deeply rooted. This paper examines how market and political competition for deposits raised the level of coverage and spread insurance to all depository institutions. A comparison of the cost of federal insurance with a counterfactual of an insurance-free system shows that federal insurance ultimately imposed a" higher cost but achieved political acceptance because of the distribution of the burden.