Question

What are the major functions performed by the FDIC? What are the main advantages of being a bank member of the FDIC?

Answer 1

The major function of FDIC is to preserve as well as promote public confidence in the U.S. financial system. FDIC does this by insuring deposits in banks and thrift institutions for at least $250,000. FDIC also identifies, monitors and addresses risks to the deposit insurance funds. Another important function of FDIC is to limit the effect on the economy and the financial system when a bank or thrift institution fails. FDIC, in its pursuit of its objectives, examines and supervises around 4,000 banks for the purpose of ensuring their operational safety and soundness.

The main advantage of being a bank member of FDIC is that it helps in ensuring member banks have capital adequacy and that their risk profile is proper. Thus moral hazard is reduced and this ensures that managers of a member bank do not take outsized risks to earn greater profits. All these helps in preventing bank runs.