ECO-2013 Study Guide - Quiz Guide: Credit Risk, Startup Company, Vehicle Insurance
Document Summary
If federal deposit insurance costs nothing, who pays when an insured depository institution fails and its depositors are nonetheless reimbursed for the full amount of their deposits? a. If the depository institution fails then the federal government, taxpayers, will make sure that 100% of a person"s deposit is given back, only up to the insurance limit. That"s the beauty of it, you know that the depository institution has your funds and they are taking big risks with it, you are literally risking nothing of yours. That"s why people care very little about the history of the bank, the history of risky or imprudent behavior doesn"t matter because you will only suffer minor inconveniences if the bank does in fact fail. Maybe if they are too risky and the depository institution fails they would lose their job, because that will boost their incentive to be less risky. Like today there"s very little punishment for the failure of the depository institution.
