There are 4,100 banks
and, before this year, most depositors kind of thought they were equally safe, because the depositors weren’t doing any due diligence.
And the government regulates them all to make sure that they behave prudently, but with 4,100 banks the government can only pay so much attention to any one regional bank.
After 2008, there was a perception that the government was implicitly guaranteeing the biggest banks, and that this was bad; the reaction was to regulate the biggest banks more strictly, to try to prevent them from becoming bigger, and to favor smaller regional banks.
After the 2023 crisis, there is a realization that the government is implicitly guaranteeing all of the banks.
And if you are in that business anyway, you will prefer to guarantee a few big, well-capitalized, closely supervised banks rather than thousands of risky ones.
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