Congress isn’t serious

As Tyler Cowen recently argued, you knew Congress wasn’t serious about global warming when they refused to make Americans pay more for gasoline. And I would add that you can be sure that the populists who want to “re-regulate the banking system” aren’t serious when all they can do is talk about 3.5% downpayments for bad credit risks. It is so much more fun to bash big banks.

Then he point to David Henderson's article:

To be sure, Obama is going after a real problem: that banks often take too many risks in their investments. Wouldn't it be nice if we could go after that problem while not destroying the benefits of having large banks?

We can. And the best way to do that is to give those closest to banks a strong incentive to make sure the banks aren't taking undue risks.

One way to do that would be to get rid of deposit insurance. Until Dec. 31, 2013, if a bank fails and you have up to $250,000 in that bank, the Federal Deposit Insurance Corp. will make you whole. We depositors, therefore, don't have an incentive to monitor banks: it's called "moral hazard." Moral hazard, as you can see, has little to do with morality, but much to do with incentives. With little monitoring by depositors, banks are freer to take risks with "other people's money."