The safety net, along with our improved understanding of how to use monetary and fiscal policies, has played a critical role in this country in eliminating bank runs, in assuaging financial crises, and arguably in reducing the number and amplitude of economic contractions in the past sixty years.
Deposit insurance, the discount window, and access to Fedwire and daylight overdrafts provide depository institutions and financial market participants with safety, liquidity, and solvency unheard of in previous years. These benefits, however, have come with a cost: distortions in the price signals that are used to allocate resources, induced excessive risk-taking, and, to limit the resultant moral hazard, greater government supervision and regulation.