Question

(bank deregulation some economists argue that deregulating the interest rates that could be paid on deposits combined with deposit insurance led to the insolvency of many depository institutions. on what basis do they make such an argument?

Answer 1

Base on my research this type of argument is baseless but it depends on the 100% free enterprise market system. With this system, the government doesn't have regulatory powers to protect the interest of the consumers from the financial institutions. In a situation that without the interest rate modulation, the rate charged on loans could be 40% while the rate paid on savings could be 1%. If this happens the financial institutions will not have to pay FDIC insurance to ensure the solvency of the overall system.