The Wisdom Of Uncapped Depository Insurance

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Interestingly, Ireland has unlimited coverage for depositors in major Irish banks. That sounds like a great idea when its passed in a legislative body and various parties who need to look a bit more populist this year without losing their capitalist credentials are prone to support such things. But the piper eventually comes calling with a big invoice. In difficult times (like now) unlimited liability suddenly looks like a problem, and it is entirely possible to schedule appropriate reserves for. Oops. $250,000 looks tame by comparison.
The Wall Street Journal makes the rather excellent point that depositors in Irish banks that are covered effectively are securities holders in a class of sovereign debt. That's great for the depositors (after a fashion) but difficult to reconcile with other costs.
Subsidizing Depositor's Income [Wall Street Journal]

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