It isn't. Regulators are given a legal responsibility to oversee these institutions because they are (still) essentially trading on govt credit. That is why fi

It isn't. Regulators are given a legal responsibility to oversee these institutions because they are (still) essentially trading on govt credit. That is why financial regulations exist: to give people confidence that bank failures won't happen. 95% of people are unable to perform the credit analysis necessary (and some banks don't even report this information publicly) to make lending decisions. And if regulators were unable to perform this kind of analysis in this case, I am not sure why people think savers will be able to. So the way the system works is to accept that these kind of things will not achieve perfect outcomes in every single case, in order to create a system that secures funding for the place that employs you (this is what FDIC is, it is a massive insurance scheme). If you are saying: why don't we have a system in which this doesn't happen? You are saying: why don't we have a system in which the economy is significantly smaller? And btw, in that system you will also never obtain the coveted short-term perfection. And finally, unsecured creditors would be bailed out but shareholders would be written down to zero. I am not really clear if most people actually understand what happened in 2008. One of the narratives is that everyone wealthy got paid out, and things went on as normal...this didn't happen. Your point about "this wouldn't happen if people had the incentive"...okay, did regulators have the incentive? Everyone had the incentive, but sometimes people are wrong.