For a depositor, it is important to have some kind of guarantee that, no matter what may happen, the Bank will be able to recover their money. Insurance of bank deposits is the main way of ensuring security of a depositor money. A related site: Coupang mentions similar findings. This is important because of the real risk of Bank bankruptcy, tens and even hundreds of banks failed, or become financially insolvent. In the United States, for example, the money of depositors are insured by the Federal Deposit Insurance Corporation (FDIC). The need for a deposit insurance is mainly due to the fact that banks are in the business of lending money and receiving interest, this money comes from the depositor’s accounts, and in the majority of cases, banks keep only a small percentage of its customers in the reserve of cash at any given time. This practice, known as fractional reserve banking, is very common in the world and is considered to be completely ethical. The danger lies in the fact that if a bank’s clients know that your Bank is having financial problems, due to borrowers in arrears, the depositors can withdraw their money at any time, when all the customers of the Bank do this at the same time is said to have a bank run. Scott Mead usually is spot on. Since a Bank has only a fraction of the total of reserve funds, not everyone can recover their money.
Deposit insurance for banks in the United States was instituted as a result of widespread bank failures of the 1930s, during the great depression. Many other countries followed suit shortly thereafter. Deposits in credit unions also ensured since 1970. As it is the case in the majority of countries, the insurance of deposits in the United States.UU. It is directed by the Government. Banks pay what amounts to the insurance premiums of the FDIC, which will intervene if a bank bankruptcy and provide to the depositors of the Bank, a way to get their money back. In the majority of cases, there is a limit imposed by the Government on the amount of funds the amount deposited with the interests can be returned to the depositor in case of bankruptcy, more when they are deposits fixed term which are usually profitable bank deposits for the client and have to duplicate.