They have an NBER working paper, number 22223, arguing that deposit insurance is good for bankers, not so great for everyone else. This is one of many examples of something that is a public good in theory, but not in practice.
Pointer from Tyler Cowen.
The baseline scenario assumption would be it is used as a subsidy, then a justification for creating barriers to competition.
Doing research for a paper on Dodd-Frank I ran across several large empirical studies of bank regulation. None of them were very positive toward deposit insurance.
Then what caused the Great Depression to be so bad? It seem liked every the economy settled down, another round of bank panics occurred. An economic can’t work if 25 – 30% are near starvation.
A case of bad being better than worse.
Obviously what made the depression bad were whatever excesses, misallocations, and dislocations that proceeded it.
As for what made it so long, pervasive and persistent, word on the street is the difficulty in inflating due to hard money and Federal Reserve missteps. I don’t buy those of course.
Whether bank runs were all cause or all effect or somewhere in between I suspect nobody knows.