Suppose that deposit insurance were reduced to a maximum of $50,000 per account (instead of $250,000).This would address the specific market imperfection of

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Reducing deposit insurance to a maximum of $50,000 per account would address the market imperfection of moral hazard because it would make depositors more cautious and careful about where they put their money. With lower insurance coverage, depositors would have to take more responsibility for choosing safe and reliable banks, instead of relying on the government to bail them out in case of bank failures. This would reduce the moral hazard problem where depositors have little incentive to monitor and discipline banks because they feel protected by government guarantees.

Suppose That Deposit Insurance Were Reduced to a Maximum of $50,000