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Deposit insurance

In America bank deposits and company pensions are protected through sector-wide schemes, funded by a levy on those that participate.
The problem, as the Federal Deposit Insurance Corporation (FDIC) and the Pension Benefit Guarantee Corporation (PBGC) have found, is that banks and pension funds engage in herd-like behaviour.
Buttonwood, The Economist print, September 4th 2008

Banks compete in similar lines of business, lending against commercial or residential property or (in the late 1970s) channelling money to developing nations. That other banks are doing the same thing tends to breed confidence, rather than caution. Indeed, executives may come under pressure if they are losing market share in a popular area. When banks lend money so that people can buy assets, the prices of those assets rise; in turn, that makes the banks more confident about their original lending decision. As a result when the market turns, a lot of banks can have similar problems.

The example of the 1930s, when a lack of public confidence in the banks contributed to the Depression, is impossible to forget.

But such schemes may breed a degree of complacency that there will always be someone else around to fix any problems. The costs of that complacency are now becoming clear.

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