Does the United States need to maintain two separate insurance funds for banks and thrifts?
This Economic Commentary examines the arguments in support of a recent reform proposal for merging them. The Great Depression opened an era of increased federal government intervention into private markets. It brought striking changes to the financial sector, where legislation like the GlassSteagall Act of 1933 sought to compartmentalize financial firms and markets into distinct sets of activities (commercial banking, housing finance, investment banking, and insurance). This fragmentation was mirrored in government agencies, where a separate regulatory infrastructure was established for each segment of the financial system. The change also meant setting up two different insurance funds for depository institutions: one for those engaged primarily in housing finance (savings and loans) and another for commercial banks.1 Three eventful decades have now blurred the distinctions between financial markets and financial firms. Rising inflation in the 1970s and rapid advances in information an
