Banking

Did Federal Deposit Insurance Corrupt the Banking System? [Reason Podcast]

George Selgin vs. Josh Barro at the Soho Forum.

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"Before the 1930s, you could open up The Wall Street Journal and see advertisements for different banks saying how much capital they had," said George Selgin, who's the director of the Center for Monetary and Financial Alternatives at the Cato Institute. "It's easy to have a market for safety when you don't protect people from losses…"

In today's podcast, we've got the audio from an April 12 live debate in which Selgin went up against Business Insider Senior Editor Josh Barro over whether the U.S. should do away with federal deposit insurance—a system in which the government guarantees bank balances of up to $250,000. A leading proponent of free banking, Selgin argued that deposit insurance has destroyed the incentive for banks to be fiscally prudent and contributed to the 2008 financial crisis.

Selgin vs. Barro at the Soho Forum ||| Jim Epstein
Jim Epstein

Barro, who has called Selgin's views on banking "kooky," made the case that even libertarians should support deposit insurance because in a financial crisis the government would step up and protect depositors regardless, so it's better to have a formal system in place.

The event was hosted by the Soho Forum, a monthly libertarian-themed Oxford-style debate series in New York City. At the beginning of the event, attendees get to vote on the evening's resolution. After the debaters have had their say, the audience votes again, and the side that's gained the most ground wins the contest.

Selgin came out on top: At the outset of the debate, 48 percent of the audience supported abolishing federal deposit insurance and 23 percent were opposed. At the end, 60 percent wanted it abolished, while the percentage of the audience opposed to the resolution didn't change.

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Next up at the Soho Forum: On Tuesday, May 16, Lawrence Ross debates Kmele Foster over whether "America's colleges have fostered a racist environment that makes them a hostile space for African American students." Get your tickets here.