Deposit insurance

Deposit insurance guarantees repayment of eligible bank deposits up to a specified limit if an insured financial institution fails. It is usually funded through premiums paid by participating institutions.

Federal Deposit Insurance Corporation: A U.S. government corporation that insures deposits and resolves failed banks. It administers U.S. deposit insurance and pays insured depositors after bank failures.
Panic of 1907: A U.S. financial crisis marked by bank runs and the failure of several trust companies. Its disruption helped spur reforms that preceded federal deposit insurance.
Bank run: A rapid withdrawal of deposits from a bank by customers who fear it may fail. Credible coverage can weaken the incentive to withdraw funds during panic.
Deposit guarantee: A public commitment to repay specified bank deposits, sometimes without a fixed coverage ceiling. It can describe broader or temporary protection than a standing, capped insurance scheme.
Deposit insurance fund: A pool of assets and resources set aside to cover insured deposits and related resolution costs. It finances covered losses when insured institutions fail.
Banking Act of 1933: A U.S. law that reformed banking and established federal deposit insurance. It created the statutory foundation for the FDIC and initial federal coverage.
Moral hazard: A change in behavior caused when protection from risk reduces the cost of taking it. Insured depositors may monitor banks less, while banks may take greater risks.
Bank capital: A bank’s loss-absorbing funding, measured as the difference between assets and liabilities under accounting rules. Capital absorbs losses before deposit insurance must cover failed-bank claims.
Coverage limit: The maximum amount of an insured claim protected under a specified policy or legal scheme. It sets the boundary between protected and potentially uninsured balances.
Federal Deposit Insurance Corporation Improvement Act of 1991: A U.S. law that reformed bank supervision, resolution, and deposit-insurance funding after the savings and loan crisis. It changed how the U.S. system funds insurance and handles failing banks.

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