What is the purpose of deposit insurance?

<p>Kia ora,</p><p>Welcome to Tuesday’s Economy Watch where we follow the economic events and trends that affect Aotearoa/New Zealand.</p><p>I'm David Chaston and this is the international edition from Interest.co.nz.</p><p>And today we lead with news deposit insurance and financial stability are getting involved in an unhealthy mix</p><p>But first up, in the US there were the two competing PMIs for April released overnight. <a href="https://www.ismworld.org/supply-management-news-and-reports/reports/ism-report-on-business/pmi/april/" target="_blank"><strong>The closely-watched local one</strong></a> recorded a contraction, although less than expected and less than in March. <a href="https://www.pmi.spglobal.com/Public/Home/PressRelease/d6c820c7de21472e9e4a01c34e357d49" target="_blank"><strong>The internationally benchmarked one</strong></a> recorded a small expansion after a minor contraction in March. Both suggested price pressures are not yet easing.</p><p>And we should note that JPMorgan Chase was <a href="https://www.fdic.gov/news/press-releases/2023/pr23034.html" target="_blank"><strong>the 'winner' in the FDIC auction</strong></a> to take over the failed First Federal Bank. They beat out two other bidders (PNC and Citizens Bank). Meanwhile, regulators are <a href="https://www.fdic.gov/analysis/options-deposit-insurance-reforms/report/options-deposit-insurance-reform-full.pdf" target="_blank"><strong>reviewing their deposit insurance scheme</strong></a>, one that was found wanting during the recent turmoil. Rather than protecting deposits to a limit, they face having to expand it to some sort of unlimited version. Interestingly, financial markets have shrugged of worries about bank health.</p><p>The RBNZ is due to institute a deposit guarantee scheme here, so they will no doubt be assessing what lessons they can draw from all this. The world is shifting to a policy trap where no-one can get hurt from risks that go bad.</p><p>The <a href="https://www.pmi.spglobal.com/Public/Home/PressRelease/f8fe90c86e7f4da58