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Chapter 14: Problem 14

In a program of deposit insurance as it is operated in the United States, what is being insured and who pays the insurance premiums?

Short Answer

Expert verified
In the United States, deposit insurance is provided by the Federal Deposit Insurance Corporation (FDIC) to protect individual or organizational depositors having bank accounts such as checking, savings, money market deposit accounts, and certificates of deposit (CDs). The eligible deposits are insured up to $250,000 per depositor, per insured bank, for each account ownership category. The insurance premiums are paid by the banks themselves, based on their risk category and total assets, to ensure their customers' deposits in case of bank failure.

Step by step solution

01

Understanding Deposit Insurance

Deposit insurance is a protection provided to bank depositors to safeguard their deposits at banks in case the bank fails or goes bankrupt. In the United States, the Federal Deposit Insurance Corporation (FDIC) is the organization responsible for providing this insurance coverage.
02

What is being insured?

In the context of deposit insurance in the United States, the insured party is the individual or organization having the deposit account at the bank. The deposits insured typically include checking accounts, savings accounts, money market deposit accounts, and certificates of deposit (CDs). The FDIC currently insures up to $250,000 per depositor, per insured bank, for each account ownership category.
03

Who pays the insurance premiums?

The insurance premiums are paid by the banks themselves, not the individual account holders. Banks pay the premiums to the FDIC to be part of the deposit insurance program which ensures their customers' deposits. These premiums are based on the bank's risk category and total assets, which help to determine the appropriate insurance levels to cover potential bank failures. In conclusion, deposit insurance in the United States protects the deposits of individual account holders in case their bank fails, and the insurance premiums are paid by the banks to the FDIC.

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