> why should the taxpayers be put on the hook for that?
One reason that it was done in the past was because it saves the taxpayers money by bailing out a single meltdown rather than something systemic.
But you should recognize: The taxpayers back up the FDIC, but singleton meltdowns are paid out of the insurance fund, which is paid into by the banks themselves. As long as that fund does not get exhausted (ie a systemic meltdown) it doesn't cost the taxpayers directly.
Why? When the FDIC steps in, the bank doesn't get to go on operating like nothing happened. They're shut down, the owners of the bank lose their money, and management is fired. It's the depositors who are bailed out.
The entire financial system is built on trust and stability. When a bank is rescued its shareholders suffer (by selling at a loss, nationalization, whatever). It’s not a positive outcome for them, but rescuing a bank has big implications for systematic stability.
One reason that it was done in the past was because it saves the taxpayers money by bailing out a single meltdown rather than something systemic.
But you should recognize: The taxpayers back up the FDIC, but singleton meltdowns are paid out of the insurance fund, which is paid into by the banks themselves. As long as that fund does not get exhausted (ie a systemic meltdown) it doesn't cost the taxpayers directly.