Question

In 2008, as a financial crisis began to unfold in the United States, the FDIC raised the limit on insured losses to bank depositors from \(100,000 per account to \)250,000 per account. How would this help stabilize the financial system?

Short answer

The major benefit of raising the limit was, it helps in saving the economy from financial panic.

Step-by-step solution

Step 1. Introduction

Afinancial system is a fixed of institutions, which includes banks, coverage companies, and inventory exchanges, that allow the change of funds. Financial structures exist on firm, regional, and international levels.

Step 2. Explanation

During the economic panic, regulators have been worried that depositors involved their banks might fail, and that depositors (specially with debts over $100,000) might pull cash from banks, leaving coins-starved banks with even much less coins to meet patron needs and every day operations. This ought to create a contagious financial institution panic wherein in any other case wholesome banks might fail. Raising the coverage restriction might reassure depositors that their cash turned into secure in banks and save you a financial institution panic, supporting to stabilize the economic system.