How deposit insurance actually works
For this week's Complex Systems Patrick reads his essay from Bits about Money on how deposit insurance actually works, with some thoughts on its performance during 2023.
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Timestamps
(00:00) Intro
(03:10) The covered peril
(07:07) Anatomy of a bank failure
(12:55) Keeping your bank hydrated
(19:58) Sponsor: Framer
(23:20) Orderly bank failures
(28:25) The cost of insurance
(30:15) The ultimate backstop
(31:48) Deposit insurance as ubiquitous infrastructure
Transcript
Hello everybody. My name is Patrick McKenzie, better known as patio11 on the Internet. Money is a minor miracle. It is underappreciated that it is backed by a constellation of systems and societal infrastructure which makes it as reliable as it is in our daily lives, including during periods of financial uncertainty, when the stock market is down or when there is indeed a banking crisis.
One of those important bits of infrastructure is deposit insurance, and I think it is probably misunderstood by people. It's the special province only of people who deal with banking regulation for a living, which sensibly is almost no one, unless you're visiting the Bank of England or another central bank. And it's poorly understood even by people who work professionally in, for example, financial technology.
I wrote Deposit Insurance Under the Coverage in July of 2022, which went into a bit of detail about how the Federal Deposit Insurance Corporation, the FDIC, conducts deposit insurance in the United States. It's something of an evergreen topic, and indeed was quite useful for explaining how FDIC insurance kicked in and was modified in 2023 when the banking crisis hit the United States regional banks.
But fortunately and unfortunately, I expect that at some point over the next few years, we will also be reflecting on how effective deposit insurance is as an institution. And so to have a link ready for those unhappy days when we are saved from the brink by an insurance policy, I will read this essay for you. I also have some post-writing commentary on it, because obviously with this written in 2022, we have the recent experience of a banking crisis, and we can talk about how particular bits held up during that banking crisis.
And with that, the essay.
The Essay
When we discussed deposits as a financial product I handwaved away explanation of an important bit of financial technology which makes them work, deposit insurance schemes. Along with the broader constellation of bank regulation, they form the public part of the public/private partnership that makes deposits money-good and therefore undergirds every transaction in the banking system and most of the wider economy.
This issue will be more U.S.-centric than I like, mostly because I understand the Federal Deposit Insurance Corporation, which runs the U.S. deposit insurance scheme, far better than any similar government agency. In broad outlines, I’d expect Japan, the UK, European Union countries, and similar to have similar mechanics, but can’t opine intelligently on them without doing more reading.
I'm going to talk fairly confidently about the fintech industry in a moment, and will repeat my usual disclaimer that I am still an advisor at Stripe. Opinions in this space are mine alone and were not e.g. run past a lawyer for an accuracy check.
But this is a thing that I'm pretty decent at.
The covered peril
Every insurance policy has a notion of “covered perils”: it will pay out if and only if an event matching a limited description happens. Deposit insurance covers precisely one covered peril: the loss to depositors (1) caused by the failure (2) of an insured financial institution (3).
From this you can deduce a lot of things which are not covered perils:
Did you lose money on a bank-issued bond or equity? Not covered; your higher rate of return was specifically to compensate you for the risk you were taking. As we covered previously, your money protected depositors. Thank you for your service.
Did your bank eff up a given transaction with you, in such a way that you lost money but the bank is still open for business? Not covered; your recourse is with the bank, its regulators, or the legal system.
Did a business which has an account at an FDIC-insured institution, but is not itself an FDIC-insured institution, fail? Not covered. If their bank is still open for business, your princess is in another castle, and you’ll very likely have to follow a bankruptcy proceeding with interest.
As an aside, the FDIC sent a number of letters out in 2022, post the writing of this essay, and in 2023, demanding that various firms stop referring to their products as FDIC-insured, because they felt that would mislead customers.
One of the firms that got such a letter was FTX. FTX claimed at one point that their customers' deposits were held at an FDIC-insured banking institution, and therefore in the event of failure at FTX, their customers would be made whole. Well, guess what? FTX did indeed fail. And the FDIC absorbed $0 of those losses because, in the instant case, the firms that FTX banked at did not fail. Now granted, those firms did fail later down the line, but the massive misappropriation of money from the depositors of FTX was not covered by FDIC insurance even then because those firms there wound down in an orderly fashion in the case of Silvergate, where no depositors took losses, or they were backstopped by a special program that we put in place in the wake of the 2023 debacle.
This third prong is a bit of a sticking point for financial technology firms, which experience a dilemma in building products that mimic some features of deposits. On the one hand, they want to message those products to the market as secure. On the other hand, they typically need to keep customers' money in the banking system, generally at an FDIC-insured institution, but they are not themselves FDIC-insured institutions.
A thing which some marketing teams will say is that deposits are secure up to the capital limits, which may mollify customers but may not answer the question. And they truly have—a thing that is often mumbled in these situations—is that the customer's money is insured against the failure of the underlying bank, whose risk of failure is known to be very remote, but not insured against the failure of the technology platform, whose risk of failure is almost always orders of magnitude larger than that of the bank.
This is heavily facts-and-circumstances-dependent detail, and even fintech product teams and lawyers often fail to understand the nuanced difference in mechanics between various implementation options for deposit-adjacent products. Which, when exposed to various tail risk events—regardless of those differences, which could fill volumes knocked out by many billable bankruptcy attorney hours—you can round this to: “the FDIC does not insure against the primary sources of risk to users of fintech products.”
Anatomy of a bank failure
But let’s talk about what deposit insurance does do. Bank failures are auto-catalyzing processes, similar to meltdowns of nuclear reactors. Deposit insurance is designed to make failures less likely and limit damage caused by them, through a variety of technical means. You could analogize it to some combination of monitoring staff, control rods (and technical measures for deploying them), and cleanup crew.
Most bank failures happen slowly and then quickly. Most banking crises happen sporadically along the periphery of the banking system and then suddenly everywhere all at once. Deposit insurance is designed to limit and contain the damage on the individual bank level to minimize the chance of failures cascading in a systemic fashion. (Making depositors whole is both a necessary prerequisite of this and, to a degree, a happy side effect of this core function.)
The thing which happens slowly to banks is making bad loans. This takes a substantial amount of work, generally spanning many people’s efforts over years. Lots of smart people have to go into work every day, produce a lot of paper, and bend all of their professional efforts to the task for a bank end up with a pile of bad loans.
I'll say, in the context of the 2023 banking crisis, the underlying issue was not bad loans so much as bad loans and bonds. Where the "bad" was not so much credit quality. It was simply that the loans and bonds were purchased in a very low interest rate environment. We moved into a high interest rate environment, and then banks ran into a great deal of interest rate risk, which they had mismanaged. [Patrick notes: The consequence is a great subtitle to a report: How Banks Lost Half A Trillion Dollars In 2022.]
And also from the side of the folks that set the interest rates, they did not heed the warnings from the FDIC that cranking rates as quickly as they were cranking would cause large losses in the banking sector. And indeed, reading those FDIC reports on a quarterly basis up to the 2023 banking crisis makes for some excellent salaryman skills in trying to read the FDIC blinking at the Federal Reserve: "If you keep doing this, this will crash the banks." And the Federal Reserve thinking, "But we've got to keep doing it because we got to get inflation under control." Decisions were made.
[Patrick notes: How explicit was that warning? It was reiterated, a few weeks before the crisis, next to the scariest chart I’ve seen in my career. This is a quote:
This chart shows the elevated level of unrealized losses on investment securities due to high market interest rates. Unrealized losses on available–for–sale and held–to–maturity securities totaled $620 billion in the fourth quarter, down $69.5 billion from the prior quarter, due in part to lower mortgage rates. The combination of a high level of longer–term asset maturities and a moderate decline in total deposits underscores the risk that these unrealized losses could become actual losses should banks need to sell securities to meet liquidity needs.
]
So that bit about working hard to produce a bunch of bad loans sounds like a joke but it isn't one. A good portion of banking regulation is making it hard to do things that blow up banks. That is why banks don't routinely have e.g. 25% of their loan book concentrated in loans to single overleveraged hedge funds, a pattern that the crypto industry has recently discovered the riskiness of.
I'll note as an aside, it turned out that concentration risk was a major, major issue. With regards to Silvergate (an orderly wind-down) and Signature Bank (a failure), it was concentration risk specifically concentrated in the crypto industry. SVB also had some crypto exposure but it was relatively speaking less of their problem.Recall that deposits are liabilities which allowed a bank to leverage up their capital to purchase or manufacture assets, which will overwhelmingly be loans. Many things can make a loan bad. The most obvious one to non-specialists is abysmally poor credit quality; a loan which was doomed to never be repaid is, obviously, a bad loan. Very few loans are bad in this fashion.
The more likely failures of underwriting loans are pricing credit quality poorly (not earning enough interest to cover the risks associated with a loan) and poor portfolio construction.
The first was a major contributing cause to the global financial crisis; for complicated reasons, the United States via a combination of policy and market forces ended up in a situation where the financial industry greatly mispriced risks in so-called subprime home loans and overproduced them relative to true market demand for those assets and, relatedly, for the homes. (Most discourses about the financial crisis miss that the malinvestment is not just in improper operation of a spreadsheet but in bending the productive resources of the nation to build particular physical instantiations of homes, using bricks and concrete and labor and similar, in particular places, such that no buyer actually existed for the home near the price the home was believed to command.)I'll note as an aside, in the intervening almost 20 years now since the financial crisis, many of those homes would now have been consumable by the market at the prices which they were believed to carry in 2008. This is largely due to the combination of America getting wealthier over the intervening 20 years and our frankly scandalous underinvestment in building homes in the last ~20 years. However, being off by 15 years on timing is indistinguishable from being wrong in capital markets.
Anyhow, back to failing banks.
Suppose you’ve made some bad loans, a process which took you years. Suppose you’ve actually lost money on some of these loans, which is not co-extensive with making a bad loan; you can lose money on good loans (and frequently will!) and you can have bad loans which are, for the moment, paying as agreed.
As an aside, very many loans made to the commercial real estate industry right now which have not defaulted yet, but which the companies and banks that made the loans extremely wish that they could unroll, and which they can't unroll because of reasons outside the scope of this talk.
You can, through either ill will or desire to provide your valued customers with the experience that keeps bringing them back, paper over those losses by, for example, lending commercial real estate operators more money for new projects, with them using some of it to make payments on their old loans. This is one of the most dangerous auto-catalyzing processes for bank failure. The hole is getting deeper by a mechanism that prevents you from seeing that there is any hole.
As an aside, in commercial real estate, this is often called "extend and pretend." You extend new loans to cover the old loans and pretend that there is some economic value somewhere in the economy which will eventually make you whole for those old loans.
In principle, bad loans are enough to cause bank failure. In practice, there is almost always a catalyst, and that catalyst is almost always a liquidity crunch.
Keeping your bank hydrated
Banks need to be liquid—to have assets which can be easily converted into money at very close to the value they are marked as having—for day to day operations. Partly this is to e.g. make payroll and pay vendors, but overwhelmingly it is necessary to service depositors.
Predicting depositors’ demands for liquidity is one of the core boring challenges of banking. It isn’t anything close to constant over time; it tends to surge around payday, for example, and holidays, and during periods of broad financial stress. (Somewhat counterintuitively, banks often become more liquid during crises, as e.g. depositors sell financial assets and move cash into the bank, or as e.g. a community bank which recently saw its community hit by wildfires sees insurance payouts move billions of dollars of settlements into the bank one account at a time.)
What happens when a bank is not as liquid as it predicts it needs to be? It sells assets, and generally the best assets go first. A bank with marketable Treasury securities (debts of the U.S. government), for example, can find a willing buyer for them with virtually no slippage at basically any time. A bank might have some bonds of publicly traded companies, and perhaps it would take more of a loss selling those, but in most market conditions those sales can be done quickly.
Run out of things which you can push a button to sell? Well, you still have options. You’ll look at your loan book, and start with e.g. high-quality residential mortgages which are conforming. There is almost always a buyer for that product, and it can be done relatively efficiently, but not as efficiently as Treasuries or marketable securities.
Then you’ll start looking at your non-conforming mortgages and commercial loan book. And around here is where you start to run into trouble.As an aside, if you want to read a concrete instantiation of the difficulty in making a commercial loan book liquidate on a very short time frame, you can read the after-action report for the closure of Signature Bank. Signature Bank had a large practice in New York City commercial real estate, and Signature Bank had the misapprehension, bordering on delusion, that they could take their commercial loan book to the Federal Reserve or other sources of emergency liquidity over the course of the weekend when the bank was failing and get that commercial loan book underwritten over the course of a weekend, so that the source of liquidity could loan that money against the value of their commercial loan book, less some haircut, such that they would be able to meet the billions upon billions of dollars that their depositors were asking to get wired out on Monday morning. That was a delusion—that was never going to happen.
The crypto community, as I've discussed in the piece "Debanking and Debanking," has chosen to believe what Signature says about their decision-making process over that weekend. Former Senator Barney Frank was a board member of Signature. He's also staked a significant portion of his credibility on "we believe that we were sufficiently liquid, and management's predictions for being sufficiently liquid presuppose that there was magically available liquidity over the weekend to have for those commercial loan books." And I'm sorry, banking just doesn't work that way, as they found out when the excrement hit the fan.
See, your bank is heavily entwined in the microeconomy it operates in, as are all of your counterparties. (If your bank is under stress, it is overwhelmingly likely to be a community bank. That said, this generalizes to basically all sizes of banks.)I will say, as an aside, strictly speaking, this is true—there are more community banks that fall into distress than other banks that fall into distress. But obviously with the experience of 2023, the stress was concentrated in large regionals for various reasons.
Your loan books are likely to be very correlated. Basically every effective process to grow loans introduces more correlation. You site your branches in places where you think they will get attractive business brought to them, and your loan book starts to concentrate in those neighborhoods. You hire loan officers who are good at getting deals done, and your loan book concentrates in the professional networks of those loan officers, of whom you probably have less than a few dozen. You provide excellent service to your customers and they refer their friends, and their friends tend to be from the same industry with the same rough credit profiles doing business in the same areas.
When you attempt to sell concentrated packages of risk, the buyer, who is likewise a savvy financial institution, will do two things.
One, they will want a discount to what you think the package is worth, both to make it worth their while to absorb the friction of the deal and also to compensate them for correlated risk.
Two, they will blab to everyone they know that you are shopping blocks of your book.
As an aside, this was extremely a problem in 2023 when the banks attempted to either sell portions of their assets or raise capital. The fact of raising capital is a sign of weakness, and no matter how many times that you say to the market "we are only raising capital because we don't need to raise capital," the market has long since internalized the words of Tywin Lannister here: "No one who says they don't need to raise capital does not need to raise capital."
In particular, many of your loans are to commercial real estate developers and operators. Here it is useful to understand that CRE professionals are the most indiscrete industry on God’s green earth. The industry runs on secrets and alcohol, and both are exchanged to lubricate relationships. Some enterprising bartender should mix a cocktail and brand it Non-Disclosure Agreement; it would sell swimming pools.
Commercial real estate players are local rich people and pillar members of the community. Birds of a feather flock together, and CRE players talk to people much like themselves, at the bar, on the golf course, at church, at barbecues, etc. It is literally their business to talk to most of your deposit base.
And the thing they say will be that your institution is undergoing stress, and that the first people to withdrawal their deposits will get 100% of their money, but that later depositors attempting to withdraw might not.
And then you end up with a bank run, the most dangerous auto-catalyzing part of bank failures, where your depositors race to get their money out.
In most cases, if you’re killed by a bank run, the damage was done long before. You earned your fate via years of diligent work making bad loans, and became insolvent. The bank run revealed the insolvency.
As an aside in 2023, the insolvency was known prior to the bank run, but only became really common knowledge among the depositor base of, say, SVB in the midst of the bank run. And that was one of the reasons why it was the fastest bank run in history. It had been acted upon by various hedge funds and reported by the Financial Times, I think, but Byrne Hobart is often given credit for his essay in The Diff, which brought it to the attention of people who were more central to the community of practice that was the SVB depositor base, than the Financial Times was.
Failing bankers often don’t agree with this. They think e.g. the liquidity constraint caused by the bank run made them need to sell off assets at a discount to their true value. If they had realized the true value of the assets, if people had just been patient, they argue, the bank would have survived.
Back to deposit insurance
Deposit insurance schemes include what game theorists would call a commitment strategy. One way to maintain trust is the messy and complicated business of building it over time. In a bank run, that trust, carefully cultivated over years, can evaporate in a matter of hours.
Another way to maintain trust is to say “An algorithm, administered by someone much bigger than any of us, who has much less emotional skin in this game, is going to absolutely steamroll all the facts of this particular situation and do exactly what it is designed to do.”
The FDIC’s algorithm, in simplified form, is “If an insured financial institution fails, we will make absolutely positively sure that each depositor gets their deposits back, up to a limit of $250,000.”
The actual recovery formula is substantially more complicated. That coverage limit is per account type, a nuance that only financial planners could love. The definition of a depositor is exactingly specified down to what happens when people share ownership of accounts.
But what the FDIC tries to do is to make information-sensitive (“This particular bank is failing!”) debt, the deposits, again information-insensitive to most depositors. “Don’t worry, the U.S. federal government is good for more money that you’ve ever had. Don’t feel the need to come to the bank on Monday, unless you otherwise would have, in which case the money will absolutely be there.”
Businesses, which frequently have more than $250,000 to their names, have treasury management practices to limit counterparty exposure, including to banks. We’ll discuss those in depth some other time. This is also available to individuals as a product at e.g. many brokerages, to somewhat artificially boost their FDIC-insured limits while staying within the letter of all regulations. (The FDIC is not thrilled about this, but the products work as advertised for the moment.)
Orderly bank failures
How to ensure that the money is there on Monday? Well, the bank didn’t fail in a day. It has been making bad loans for years. Its supervisors (regulators) have almost certainly noticed its deteriorating health for a while. They told the bank to correct its loan practices and raise more capital. That didn’t happen.As an aside, one of the things that most frustrates me about the banking crisis of 2023 is that, in fact, we did not have situational awareness among banking regulators that the situation was as bad as it was. The FDIC had been saying in very general terms, "Well, if the interest rate environment keeps moving up, a lot of banks are going to be in trouble." But the banks that were actually in the most trouble were not on the problem list, which is treated as a state secret. For example, SVB was not on the problem bank list at the point which it had failed. [Patrick notes: The FDIC previously reported the total assets of banks on the Problem Bank List. I pointed out, I think fairly uniquely, that that number was below the assets of SVB. Shortly thereafter, the FDIC ceased to publish the total assets of the Problem Bank List, for… reasons of their own.]
Some of the post-mortems of supervisory action subsequent to the 2023 crisis allocate to supervisors being poorly informed about the banks they were supervising. A very gobsmacking one from the Fed says that banking supervisors probably did not realize that Silvergate Bank, what I descriptively call the First National Bank of Crypto, had pivoted from being a two-branch real estate bank to being a crypto-focused monoline bank. Basically, Silvergate had IPO'd on the basis of their business model. If you as the regulator don't understand that that has happened, that's a skill issue, as the kids would say.
So eventually, on a Friday, the supervisor (which is not the FDIC) tells the bank that it has failed. Concurrently with this, the FDIC swings into action. The micro-mechanics of this are fascinating; they resemble a police raid on the bank headquarters except mostly conducted by people who look like accountants (and in some cases, are).
That action is, in almost all cases, selling the deposits and assets of the bank to another financial institution. Banks benefit from scale. This is a core reason that they open new branches at the margin. The FDIC’s proposal is “Hey, a bunch of perfectly good branches with perfectly good bankers just came on the market. They’ve also got some assets and… well… nobody gets here if the assets are also perfectly good. But almost any pile of assets is good at the right price. Let’s make a deal.”
In cases where the bank is not actually insolvent—where they truly are just having liquidity problems—subsuming them into a larger, healthier bank solves the problem outright. The acquiring bank gets their assets at an attractive price, and the losses (the difference between the value of the assets and that attractive price) are borne by equity holders in the original bank, who will often be zeroed out or close to it. The FDIC prioritizes depositor recovery at lowest cost to the FDIC’s insurance fund, not the interests of bank shareholders. If you have reached this point, you have been called upon to perform the sacred duty of equity in a bank: take the L to preserve the depositors’ interests.
But what about in more advanced cases, where the loan book is so bad or market conditions are so stressed that the bank is insolvent? In these cases, the FDIC attempts to throw in a sweetener to the acquiring bank.
That sweetener often takes the form of a Shared Loss Agreement (SLA). Suppose, for example, that the FDIC models that a failing bank with approximately $100 million in deposits and $100 million in loans will probably take +/- $5 million in loan losses over the next few years. They could write an SLA with the acquiring bank saying “Here’s a $5 million cash payout which we will make to you immediately, covering these doubtful loans. You are contractually obligated to continue servicing them. If you actually get any recovery, wonderful, keep 20% for your efforts and send 80% back to us.”
The SLA is so-named because the acquiring bank and the FDIC’s insurance fund split the cost of loan losses. It could also be called a form of private leverage on the insurance fund. The private-sector equity in the acquiring bank absorbs much of the risk of the loan book, versus e.g. the FDIC having to actually sell the loan book in what is likely a distressed market. This theoretically minimizes the cash outlay of the insurance fund.
You can actually read through the list of bank failures and see how boringly functional this all is. For example, if you were a depositor at a tiny $100 million bank in Florida that you’ve never heard of, when it failed in 2020 you lost zero dollars and zero cents at a cost to the FDIC of about $10 million.
The Deposit Insurance Fund has about $120 billion in it.2023 did not go as smoothly as we would have hoped for the deposit insurance fund, largely in the interest of limiting contagion to the rest of the regional banks and potentially to the broader financial system. There was a decision made to make the extraordinary backstop of all deposits at the banks that were under the most stress and had failed, such as SVB and eventually First Republic. And we effectively messaged that there would be unlimited FDIC insurance in the interest of preventing, quote, "systemic risk," end quote. I won't editorialize on that—you can read more about it in other places.
The cost of insurance
The cost of deposit insurance is borne by banks, as a mandatory cost-of-doing-business. It generally scales with their total liabilities (prior to the GFC it was deposits only), and is weighted based on the perceived degree of risk, similar to most insurance pricing.
The insurance costs between 3 and 40 basis points per year, which you can compare to the interest rate you earn on your deposits. This magical failure-limiting technology is very not free. The exact determinants are mostly interesting to banking nerds.
One which is worthy of comment: a bank is charged modestly higher rates if they are heavily dependent on brokered deposits. As we’ve previously discussed in Bits about Money, brokered deposits are critically important to the economic model for brokerages and many fintechs. They’re also ruthlessly price sensitive deposits operated by professional money managers; most deposits are not. If professional money managers think a bank is imperiled theirs will be the first money out the door. Dependence on brokered deposits increases the risk of liquidity flight during times of stress and therefore increases the risk that the insurance fund will have to pay out more to cover a bank’s failure; accordingly, there is a surcharge for them.As an aside, this was exactly the thing that did in Signature Bank. Signature had a relatively sizable deposit concentration in cryptocurrency-related assets—I believe it was about 20%—but they had a much larger concentration in brokered deposits. And those brokered deposits left very, very quickly late in the week when SVB had already failed.
This is also designed as a policy mechanism to encourage more banks to build more stable deposit bases. Building deposit bases takes hard work over many years doing the boring business of banking; that is why picking up the phone to a deposit broker is so attractive even where it is more costly to the bank.
The ultimate backstop(s)
The FDIC has at least two advantages backstopping its insurance scheme which more typical insurers do not.
The first is that it enjoys the “full faith and credit” of the United States government. If it depletes the entirety of the insurance reserve in a crisis, a) that is exceptionally bad news which the entire world will read about and b) depositors still get paid because the federal government cannot run out of money. This is, again, to maintain depositors’ trust in the money-ness of all deposits at all institutions, even the bad ones, “come hell or high water.”
The second is that the FDIC exists in a constellation with the Federal Reserve, which is the “lender of last resort” for banks. During crises, when the prices of many pools of assets tend to get even more correlated and organic buyers disappear for them (or charge increasing discounts to their notional values as the premium for liquidity increases), the Federal Reserve has the option of buying financial assets or lending money to financial institutions so that they can do the same.
This was one of the mechanisms for the Troubled Asset Relief Program (TARP). A full accounting of it is outside the scope of this essay, but most non-specialists believe it to have been more of a handout than it was. To an underappreciated degree, it substituted government liquidity for dried up private liquidity and successfully charged a premium for it.As an aside, in 2023 we also had an extraordinary and temporary assumption of risk on behalf of banks, which many banks used to tap additional liquidity. And that was wound down a year later with, thankfully, no additional failures after the first few banks that failed. [Patrick notes: This was the Bank Term Funding Program.]
Deposit insurance as ubiquitous infrastructure underlying everything
There are vanishingly few bank failures. This did not use to be the case. Deposit insurance was, along with the larger supervisory apparatus (and substantial ongoing work from the private sector), a major component in breaking the negative feedback loops which previously caused individual failures and repeated, frequent, systemic banking crises.
It is difficult to overstate how important this technology is. You rely on it to the same degree as you do electricity, running water, and stable Internet connections. Like much infrastructure, it is so good you’ll hopefully never even have to realize it is there.And I'll say, as a final aside, indeed in 2023 the deposit insurance scheme was so good that, in my capacity as a depositor and not as a commentator, I slept through most of the banking crisis, despite being banked at one of the banks that indeed failed. And now I am a happy customer at the bank that subsumed them after the FDIC workout program, for which that bank was paid, I believe, about $13 billion.
Anyhow, thanks very much for listening, and see you next week on Complex Systems.
