[eru]

Lots of those legally questionable things were driven by regulation. Repackaging subprime mortgages as AAA security was driven by the requirements of some institutional investors to only deal in AAA rated securities.

Instead of giving banks secrecy and deposit insurance, we should do the opposite: require open books (perhaps with a six month lag), and no deposit insurance. That would keep customers monitoring their banks much more carefully for any fanciful shenanigans, and give a premium to the most boring banks imaginable. Boring is sometimes good.

[rpcope1]

I agree mostly, I think more regulation is important, and transparency is critical and much needed. I would not choose, however, to bank with anyone who wasn't FDIC insured; while the FDIC may allow some banks to be less risk-averse than they should be, consider a metaphor to your suggestion: when was the last time you audited all the security critical code on your computer? When was the last time an average person audited the security code on their computer? To truly expect everyone to watch out for themselves is asking a lot, without deposit insurance, sets up you up for the kind of problems seen in the 1920s that brought about the FDIC in first (even "good" banks can suffer a catastrophic run during events like what occured in 1929). If you're ever seen the amazing games corporations can play with their accounting, and begin to realize the magnitude of the task before a group like the SEC, to expect an average consumer to trust his/her checking account to their own ability to watch out for themselves seems rather foolish.

[eru]

I'd expect other people to do the audits, short the banks that fall short, and then publish their reports.

I think back in 1929 we didn't have the transparency requirements that I was suggesting. (And if you really want a bank that survives any run, you will have to pick one that offers no-fractional banking, and suffer high costs on average. Might be worth it for some.)