Explain how deposit insurance reduces the likelihood of bank panics during a crisis? Macroeconomics.

Expert Solution

Deposit insurance ensures that customers amount of deposited shall be paid off in case bank fails. Insurance provides guaranteed safety of deposit. Hence, when bank fails or rumors spread about the possibility bank failure, people or depositors do not act in panic and do not line up in bank.

Deposit insurance is inevitable to increase depositors trust in banking system.

Rahul Sunny answered 2 years ago

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