IEA Senior Research Fellow Jamie Whyte has written in The Daily Express criticising the belief that the state intervention can mitigate bank risks without causing unintended consequences.

Jamie wrote:

“The recent bank failures, from Silicon Valley Bank to Credit Suisse, highlight this phenomenon. Depositors lend money to banks. To protect individuals from the misfortune of not getting their money back, the Government guarantees deposits. If your bank goes bust and can’t repay you, never fear: the state will reimburse you.

“This means banks cannot compete for depositors by being safe and advertising that fact, as they did before the advent of deposit guarantees and bank bailouts. If depositors believe all banks are equally safe, how will banks compete for depositors?

“They must offer higher rates of interest on deposits. How will they make money to pay these higher rates of interest? By taking more risks in their lending. By making depositors safe, the Government makes banks risky.”

Read the full piece here.