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The FDIC means that banks no longer need to care about solvency. It's not the market doing that, it's government interference.

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The FDIC could seize banks (don't they?) and still protect deposits up to the 250k limit. They could also require claw-back clauses for banks that want FDIC protection. Without the FDIC the first thing banks would have done in 2008 would have been to drop the savings accounts of a lot of regular people. It plays an important role for the average citizen.

> Without the FDIC the first thing banks would have done in 2008 would have been to drop the savings accounts of a lot of regular people.

Banks go out of business if they get a reputation for defaulting on depositors' accounts. After all, would you deposit money in such a bank? I wouldn't, either. Depositors would still have legal recourse against the bank, too.

Oddly, the only banks this happened to were in Cyprus and are still in business.

Are you a current customer of those banks? I'm not, either.

They did not default - there was a 10% haircut on accounts > 100K. The haircut was possible only because most of the > 100K accounts were held by rich (mostly shady) Russians.

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