The institutional framework determines the point at which the public  9  See Haldane (2009a,b). BIS Review 111/2010  5  sector needs to be called on. But in terms of insurance of the system as a whole, at some point, it has to be provided by the public sector.
I do not believe it is socially optimal for the individual entity to fully insure itself. It would be excessively costly for the financial sector to hold enough capital and liquidity to enable it to survive a freezing of capital markets of the type that occurred in 2008. At some point, it is not even affordable.