University of Sydney Head of Business and Finance Prof. Eliza Wu says regulatory protection for depositors at banks is “necessary” as the traditional banking model indicates bank “runs” are likely to occur.
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“Regulatory protection is necessary because – the vulnerability with the traditional banking model with the maturity transformation they are engaged in with their unique role in our financial system is that there are likely to be runs,” Ms Wu told Sky News host Ross Greenwood. “Trust evaporates very quickly within financial systems and we’ve seen that happen over and over again – throughout history.
“So then it’s important to have this base level of protection in place to ensure depositors feel sufficiently safe with parking their funds with banks so they are able to engage in this important function – throughout the economy.”
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