Question
In: Economics
Discuss the ramifications of the FDIC reducing deposit insurance limits to $25,000.
Discuss the ramifications of the FDIC reducing deposit insurance limits to $25,000.
Solutions
Expert Solution
If the insurance amount is reduced to level of $25,000, it is highly likely that the overall deposits would reduce because depositors will now deposit less money in the bank. With lower deposits in the banking system, it may affect the monetary base and the money supply in the economy. this will happen because banks will find themselves short of reserves which can be used as loans. There will be an increase in the rate of interest. In short to medium term this can also damage the growth rate, reducing the level of GDP.
Rahul Sunny answered 2 years agoRelated Solutions
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lnY=2.41+0.3674lnX1+0.2217lnx2+0.0803lnx3-0.1755D1+0.2799D2+0.5634D3-0.2572D4
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Where Y= FDIC examiner labor hours
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ratio of classified loans to total loan for bank . D1=1 if
management rating was good D2=1 if management rating was fair D3=1
if management rating...
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deposit insurance Corporation) on 91 bank examinations, R.J. Miller
estimated the following function.
lnY=2.41+0.3674lnX1+0.2217lnx2+0.0803lnx3-0.1755D1+0.2799D2+0.5634D3-0.2572D4
(0.55)
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(0.0628)
(0.0287) (0.2905)
(0.1044) (0.1657)
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R2=0.766
Where Y= FDIC examiner labor hours
X1= Total assets of bank, x2 total number of offices in bank, x3
ratio of classified loans to total loan for bank . D1=1 if
management rating was good D2=1 if management rating was fair D3=1
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Group of answer choices
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$100,000
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