DPS increases depositor confidence in all banks and comforts small savers and helps the competitive position of small private banks in relation to large banks or government owned banks, which typically are viewed as safe and/or “too big to fail” (TBTF).
DPS reduces the probability of open bank runs, which can be damaging to confidence in banks more generally and lead to contagion in other banks. The protection of deposits under a limited DPS typically would be strictly confined to small depositors which constitute majority of the depositors but represent only a small proportion of total deposits in value terms.