In The Role of Deposit Insurance in the Emerging Financial Services Industry, Chairman William M. Isaac of the Federal Deposit Insurance Corporation (FDIC) suggests that major reform of the federal depository insurance system is necessary to assure sound banking practices in a period of widespread deregulation of financial markets. Isaac identifies three recent changes in the financial services industry which have created a need to re-evaluate the role of deposit insurance: expansion of the product lines which banks are allowed to offer, partial removal of constraints on interstate banking, and gradual elimination of interest rate ceilings on bank deposits. We agree with Isaac that these changes present a serious challenge to the present system of financial services regulation; we disagree, however, with his proposed reforms.

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