MacroEconomics 15.6 Federal Deposit Insurance

Because of the​ FDIC, the federal government is not exposed to asymmetric information problems.

False

Which of the following is a situation of moral hazard created by the existence of the​ FDIC?

Financial​ institutions, with FDIC​ protection, use​ depositors' funds in riskier investment projects.

Which of the following is a true​ statement?

The FDIC has reduced the number of depositors who have lost​ savings, but in doing​ so, has inadvertently encouraged banks to make riskier loans.

All deposits in U.S. banks are insured by the Federal Deposit Insurance Corporation.

True

Federal deposit insurance currently covers up to​ $250,000 per depositor per institution.

True

Since​ 2010, the FDIC has been able to assess premium rates on​ banks' total liabilities.

True

The FDIC possesses regulatory powers to offset​ risk-taking temptations to depository institution managers.

True

What are the features of federal deposit​ insurance?

Depository​ institutions' premiums are based on the value of their deposits with the funds being held for use in the case of a failed bank so that depositors can be reimbursed.

The Federal Deposit Insurance Corporation​ (FDIC)

A. Assures depositors that their deposits will be fully recoverable​ (up to a maximum of​ $250,000 per depositor per​ institution) regardless of how serious a​ bank's financial situation may be. B. Was created in 1933 to prevent bank runs that had been plaguing the economy during the Great Depression. C. Creates moral hazard problems in that big banks take on more risk knowing the FDIC will consider them​ "too big to​ fail." *D. All of the above.*