There's a moral hazard argument to be made (which I am sure no one in this forum will like) that runs like this: the more that banks are insured against losses, the more likely they are to behave recklessly or take unnecessary risks--because they know they will be bailed out. (The classic example of moral hazard is the "too big to fail" financial institutions in the United States.) On the other hand, if bank insurance is kept to a minimum, then banks are incentivized to behave responsibly--and not fail. Or if a bank does behave irresponsibly, it is allowed to fail. No government bailout. As for the people who lose money in that bank, well, they chose the wrong bank to put their money in. Caveat emptor. That is the theory at least--just putting it out there.