Deposits held by commercial banks are insured by the:
A) Federal Trade Commission.
B) Federal Deposit Insurance Corporation.
C) Federal Communications Commission.
D) Resolution Trust Corporation.
The correct answer and explanation is :
The correct answer is:
B) Federal Deposit Insurance Corporation.
Explanation:
Deposits held by commercial banks are insured by the Federal Deposit Insurance Corporation (FDIC). The FDIC is a U.S. government agency that provides deposit insurance to protect depositors in the event of a bank failure. This insurance is crucial in maintaining confidence in the U.S. financial system and ensuring that depositors do not lose their savings even if a bank becomes insolvent.
Key Points about the FDIC:
- Establishment and Purpose: The FDIC was created in 1933, following the widespread bank failures during the Great Depression. The primary purpose of the FDIC is to provide stability to the banking system by insuring deposits in participating financial institutions and reducing the risk of bank runs, where large numbers of customers try to withdraw their funds all at once due to fears of a bank’s insolvency.
- Insurance Coverage: As of 2023, the FDIC insures deposits up to $250,000 per depositor, per insured bank, for each account ownership category. This means that if a depositor has $250,000 or less in a single account at an FDIC-insured bank, their funds are fully protected. For accounts that exceed $250,000, the depositor may risk losing the excess amount if the bank fails.
- Role in Bank Failures: When a bank fails, the FDIC steps in to ensure that depositors get their insured funds back, typically within a few days. The FDIC either arranges for the sale of the failed bank’s assets to another bank or directly reimburses depositors.
Other Options:
- A) Federal Trade Commission (FTC): The FTC is responsible for enforcing antitrust laws and consumer protection, not deposit insurance.
- C) Federal Communications Commission (FCC): The FCC regulates interstate and international communications by radio, television, wire, satellite, and cable.
- D) Resolution Trust Corporation (RTC): The RTC was a temporary federal agency created during the savings and loan crisis of the 1980s to manage the resolution of failed thrifts. It is no longer in operation.
Thus, the FDIC plays a vital role in protecting depositors and maintaining the stability of the U.S. banking system.