Griffin on the FDIC:

To pay for this protection each bank is assessed a specified percentage of its total deposits. That percentage is the same for all banks regardless of their previous record or how risky their loans.

Under such conditions it does not pay to be cautious. The banks making reckless loans earn a higher rate of interest than those making conservative loans. They are also far more likely to collect from the fund yet don’t pay a penny more.

Conservative banks are penalized and gradually become motivated to make more risky loans to keep up and get their fair share of the protection. Moral hazard therefore is built right into the system.