Depositors As Collateral Damage
However, despite the fact that in all these debates, the risks that could accrue to depositors, whose capital is at risk, has been duly noted, one gets the sense that the acknowledgement is cursory.
Akin to admitting that a poorly built bridge – over a river – would severely restrict commercial traffic, dislocate a waterway, and jeopardise the lives of those who are on it, if it collapses. In a nutshell, depositors are collateral damage.
This is strange, because elsewhere depositors are considered the first and most important stakeholder of a bank.
The US Federal Deposit Insurance Corporation (FDIC) and European Forum of Deposit Insurers (EFDI) ensure that every accountholder’s deposits in every bank is insured to up to $250,000 and € 100,000 respectively, in the event of bank failure. By comparison, India’s Deposit Insurance and Credit Guarantee Corporation (DICGC) only guarantees up to INR 5 lakhs per bank.
Any argument that seeks to compare…