This incentive to take excessive risks is the so-called moral hazard problem of deposit insurance, the inducement to take risk at the expense of the insurer. Because of the reduced market discipline and moral hazard, there is an intensified need for government supervision to protect the interests of taxpayers and, in essence, substitute for the reduced market discipline.
Deposit insurance and other components of the safety net also enable banks and thrifts to attract more resources than would otherwise be the case.