> The free market still applies: on top of getting their money back, customers can take their money to more secure banks.
Unless the bank goes bankrupt. Basically, if the bank plays fast and loose with customers' money the customers shoulder the risks whilst the bank owners get the rewards - and there's no way customers can tell whether this is happening, since they neither have access to the bank's internal records and systems nor the skills and resources to make sense of them.
Actually, the only reason the baks have to return the money in the first place is because of Government intervention, and even that's not enough. Unfortunately, thanks to binding arbitration the US has a free market of sorts in dispute resolution, and the banks and financial providers have so much more market power than consumers that they can effectively pressure arbitrators into siding with them. If they don't, the bank won't do business with them and they can't find work, whereas most consumers only need to use arbitration a few times in their lifetime at most.
FDIC insurance applies if the bank goes bankrupt (and has since the 1930s), ergo, I would still get my money back. It is not a matter of arbitration; banks have gone bust frequently enough that there is a settled procedure for issuing insurance proceeds to depositors of a failed bank.
Banks pay for FDIC insurance coverage as part of their capital requirements for being a bank.
>Basically, if the bank plays fast and loose with customers' money the customers shoulder the risks whilst the bank owners get the rewards - and there's no way customers can tell whether this is happening
Tip: This is happening. This is how banks have and will always make money.
It is the role of governments to regulate to what extent the bank can use your money and for what purposes in order to minimize customer risk.
Unless the bank goes bankrupt. Basically, if the bank plays fast and loose with customers' money the customers shoulder the risks whilst the bank owners get the rewards - and there's no way customers can tell whether this is happening, since they neither have access to the bank's internal records and systems nor the skills and resources to make sense of them.
Actually, the only reason the baks have to return the money in the first place is because of Government intervention, and even that's not enough. Unfortunately, thanks to binding arbitration the US has a free market of sorts in dispute resolution, and the banks and financial providers have so much more market power than consumers that they can effectively pressure arbitrators into siding with them. If they don't, the bank won't do business with them and they can't find work, whereas most consumers only need to use arbitration a few times in their lifetime at most.