Your editorial “Protecting deposits in the era of digital bank runs” (May 11) rightly confirms that confidence depends upon the banks that borrow our savings maintaining robust balance sheets at all times.
This produces a worrying knife-edge as losses can destroy asset ratios, with the double whammy: fresh capital is needed but impossible to raise once a bank’s reputation is damaged.
The only sound solution is the draconian measure of ensuring that all banks are always small enough to fail.
Your very oldest readers may remember that in 1933 the new US depositor insurance scheme of up to $2,500 was not designed to protect the nation’s time deposits and bank balances. No, it was to protect short term customer deposits required when new mortgage advances were about to be made.
So, it was not an act of socialising the risk of loss to customer deposits. Rather, it was a device to protect the property market from freezing up when recession made holding your purchase consideration in a bank, even for a day or two, a toxic risk.
BJC Tyler
London SW11, UK
