Which of the following is a federal government agency that administers funds to insure accounts at commercial banks and certain other depository institutions?
a. SEC
b. SBF
c. NCUA
d. FDIC
The correct answer and explanation is:
The correct answer is d. FDIC (Federal Deposit Insurance Corporation).
Explanation:
The FDIC is a federal agency that insures deposits in commercial banks and other depository institutions, protecting depositors by maintaining deposit insurance for accounts. Established in 1933 during the Great Depression, its main purpose is to ensure public confidence in the banking system by providing insurance for deposits in member institutions, up to a certain limit. The FDIC insures individual bank accounts in case the bank fails, thus safeguarding depositors’ funds from loss.
The insurance covers deposits in various types of accounts, such as savings, checking, and money market accounts. This coverage is particularly important for customers, as it guarantees that even if a bank goes under, they will still be able to retrieve their funds, up to the insured limit, which as of 2023 is $250,000 per depositor, per insured bank, for each account ownership category.
The FDIC is funded by premiums paid by member banks, not by taxpayers. The agency also regulates and supervises financial institutions to ensure they are operating safely and soundly, aiming to prevent failures. In case of a bank failure, the FDIC steps in to take over the failed institution, paying out insured deposits to customers and managing the resolution process.
To distinguish it from the other options:
- SEC (Securities and Exchange Commission) regulates the securities industry, including stock exchanges, ensuring transparency and fairness in financial markets.
- SBF (Small Business Fund) is not a federal agency but may refer to funds set up to support small businesses.
- NCUA (National Credit Union Administration) insures deposits in credit unions, similar to the FDIC but for credit unions, rather than commercial banks.
The FDIC plays a critical role in maintaining financial stability by providing insurance that protects individual depositors.