FDIC is like an insurance company, but one crucial aspect of real insurance is missing. Real insurers can raise rates or halt coverage for a driver who has accidents, or a business that allows too many thefts, or a homeowner who allows methies to squat in his garage. Real insurers, especially at the business level, also provide guidance and information on safety and theft to their customers. Gradual negative feedback is crucial for a living system.

FDIC doesn’t seem to perform this side of insurance.

DIC was invented by Oklahoma as an integral part of its very first constitution in 1908. Several other Plains states followed the Okla model shortly after 1908. This short document, written by the Feds in 1914, compares the systems as a first effort toward developing a federal DIC system.

I was curious to see if the early systems fulfilled both sides of the real insurance obligation. They did half of the job. The Okla law includes insurance right next to requirements for audits and state examiners, but doesn’t have variable rates. Premiums were a fixed percentage of total deposits. The guidance side was provided by a semi-annual audit, “oftener if necessary”, but the rates didn’t change after a dubious audit.

The report’s author constantly quotes Mr Thornton Cooke, described as an opponent of the system. Cooke blamed the moral hazard of insurance for frequent bank failures in the first few years of Okla statehood, but the author used Constants and Variables properly to show that Okla had simply failed to audit. The other states had nearly identical laws but no failures. (This distinction was still obvious 50 years later. Okla’s culture was Dixie and Tribal, with an emphasis on personal power. The other Plains states were Kraut. Ordnung ist Ordnung.)

After the first mention the author forgot Mr Cooke’s name, and repeatedly called him Mr Thornton. One early reader couldn’t stand it:

My kind of reader! If the banks had more employees like her, they wouldn’t get into so much trouble.