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As determined by whom?
I think the actual relevant question is whether you were making some kind of guarantee that the money would be safe or you were giving them an informed risk such that it was clear that if [extremely low probability event] happened, the money could be lost.
And again, the point here is to disincentivize taking bad risks, and incentivize good behavior, else they might decide to take certain risks that were not originally agreed to because why not?
If the risk is indeed that tiny, then holy cow they should have no problem putting their own money at risk as well!
If they're not willing to, I read that as a strong signal that they think the risk is actually larger than that!
This is in fact why most insurance policies have exclusions for fires caused intentionally or by gross negligence.
It's also why people pay higher premiums if they're considered higher risk... or why deductibles exist.
That doesn't follow. Again, by this reasoning, we shouldn't have fire insurance, because if you want to do something with a non-zero risk of starting a fire, you need to assume the risk yourself. You point out that insurance has exclusions and deductibles, but by this reasoning people shouldn't have insurance at all, not just have exclusions and deductibles.
The entire point of insurance is so that you do not have to take on a risk with a tiny chance of happening but a large value if it happens.
I'm also pretty sure that a golden parachute is not as good for the banker as not losing his job and not needing to use the golden parachute, so considered as insurance, there's already a deductible built in, in the amount of (value of job - value of golden parachute).
Insurance companies are agreeing to 'assume' the risk of the fire occurring.
But they won't pay out of if set the building on fire intentionally (if they can prove that) and they calculate premiums based on various factors that increase or decrease fire risks.
There's a whole area of research behind moral hazard that examines how the knowledge that one is insured can change behavior.
Take this to the extreme, if a policymaker has reason to believe that a given policy is likely to result in more housefires occurring (say something stupid like mandating all houses have to be constructed of wood), but also that they, themselves, will pay no consequences as a result of this policy, then what actual incentives are there against implementing it?
We want our policymakers and decisionmakers' interests to align with the interests of the people they affect.
With housefires, they generally are aligned. Nobody wants their house to burn down, and they buy insurance to mitigate a relatively small risk that can have outsize influence on them but nobody else.
The problem arises when the person or persons who pays the cost is not the one who is making the decisions or policy.
Would you pay for fire insurance for a house you didn't own?
I agree that if you lose people's money because you committed fraud or negligence, sure, you shouldn't get a golden parachute, That's the equivalent to setting the building on fire intentionally.
The "premium" is "we're hiring you to run the bank, and part of your compensation is the possibility of getting a golden parachute if something bad happens". The premium isn't a separate line item, but the banker is still paying it--the bank wouldn't have been able to hire the banker without either providing it, or providing other compensation that makes up for its absence. And when they hired the banker, they certainly would have tried to assess how risky a banker he was when deciding how much and what kind of compensation to offer.
It's insurance, just with extra steps.
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