@MadMadMadMadRN @ddayen to claim that deposit-splitting reduces the risk of failures requires some pretty not-in-evidence assumptions. deposits in aggregate are already split across all banks. if firms are encouraged to split their individual deposits, how would that affect the distribution across banks? 1/

@MadMadMadMadRN @ddayen it seems like the intuition you are going for is that deposits would be less concentrated at a few banks, would be more evenly spread. but if that’s the goal, the main problem to address is concentration of deposits at a few TBTF banks. 2/

@MadMadMadMadRN @ddayen and it’s not clear mere spreading around of deposit obligations reduces their riskiness. 3/

@MadMadMadMadRN @ddayen another attractive but perhaps-not-great intuition is that bank failures are independent events, so spreading deposits around reduces the cost. unfortunately, finance may rival fashion the trendiest industry in the world. banks pile onto similatr trends, and suffer similar, correlated failures. the 1980s S&L crisis involved lots of smaller thrifts doing the same dumb things. 4/

@MadMadMadMadRN @ddayen i can’t tell you that it’s *wrong* there’s some financial stability upside in having firms split thr deposit base across lots of banks (directly or via products like CDARS). but i’ve never seen a strong case for such an upside, and there are clear downsides in terms of complexity, opacity, and fees. i think absent a strong case to the contrary, we shld want to reduce rather than increase the financial complexity required to run actually productive nonfinancial firms. /fin