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More Subsidies, More Problems: The Real Cost of Cheap Deposits


Published March 28, 2024

The Silicon Valley Bank collapse exposed the hidden costs of subsidized deposits in the U.S. banking system, particularly those insured by the FDIC. While these cheap deposits may seem beneficial, they create moral hazard by encouraging banks to take on excessive risks, knowing they have a stable funding source. This reduced market discipline and increased risk-taking can lead to a misallocation of resources, increased systemic risk, and a higher likelihood of bank failures which threatens to undermine the stability of the entire banking system.




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