[syntaxless]

Ultimately it falls on the taxpayer. The existence of the FDIC not only incentivizes but almost forces banks to be risky with their investments. It doesn’t matter if their lending fails because the government has to come in and clean it all up and those expenses are passed on to the public.

[dehrmann]

Banks aren't defaulting because they held bad PE loans. The recent memorable case was SVB, but it held quality paper, just with a duration risk. Banks aren't investing depositor funds in loans to Toys R Us.

[syntaxless]

It’s not entirely about defaults.

[ikiris]

FDIC has exactly 0 to do with this.

[syntaxless]

Fractional reserve banking means the bank only has a small percentage of the money its customers deposit on hand (currently 0% since 2020). What do they do with the rest of that money? They invest it. They take on risky investments because it will either pay off or they will be bailed out by the taxpayer through FDIC. There is zero risk on the banks part.