Question

Creation of the FDIC encouraged reluctant depositors to put their money into the banking system.

a) Aside from the benefit of reducing the probability of bank runs, what other positive impact has this policy had in the performance of the overall economy?

b) How could higher deposit insurance premiums for banks with riskier assets benefit the economy?

Answer 1

Q:a: Ans: Apart from benefit of reducing probability of bank runs, FDIC takes continous steps for improvement of information technology and cybersecurity in collaboration with central and state agencies to take steps to ensure cybersecurity to FDIC insured institutions.

- FDIC recruits highly educated people train them and make them highly skilled workers for its company, thus it increases employement status for economy.

- It is regularly promoting financial education to underserved housholds and communities.

Q2: Ans: The higher deposit insurance premium for banks with riskier assets willbe beneficial to the economy. The increasing amount of deposit insurance premiums helps to minimize moral hazzards and adverse selection issues. This reduces percentages of riskier assets and give benefit to economy.

As long as riskier asset reduced or managed critically , customers able to select best less risky asset and investemnt increases along with growth.