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Banks are designed to fail – and they do
This is a system that is essential to the functioning of the market economy but doesn’t operate by its rules
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Banks remain as vulnerable to runs as ever and, like it or not, uninsured depositors will not be wiped out in a failure.
PHOTO: REUTERS
Martin Wolf
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Banks fail. When they do, those who stand to lose scream for a state rescue. If the threatened costs are big enough, they will succeed. This is how, crisis by crisis, we have created a banking sector that is in theory private, but in practice a ward of the state.
The latter in turn attempts to curb the desire of shareholders and management to exploit the safety nets they enjoy. The result is a system that is essential to the functioning of the market economy but does not operate in accordance with its rules. This is a mess.
