Question

Suppose that you have $300000$in deposits at a bank. After careful consideration, the FDIC decides that this bank is now insolvent. Which method would you like to see the FDIC apply? What if your deposit were $200000?$

Short answer

If I have $300000$in my account, the method I would like to see the FDIC , is the purchase and assumption method

If I have $200000$, the minimum limit of FDIC is $250000$, so the amount is not secured.

Step-by-step solution

Concept Introduction

The FDIC (Federal deposit Insurance Corporation ) was established with a motive to overcome the problem of depositor's reluctance to deposit the money in bank, when number of cases of bank's bankruptcy were common. In absence of proper information about their bank, whether their bank is good or among the insolvent one, bank panic created. The FDIC guaranteed that depositors will be paid full for the first $\$250,000,$in case of bank fails.

:Explanation

In the given condition, depositor has $\$300,000$deposits in the bank.

The FDIC adopts either pay off method, in which first $\$250,000$will be paid and for rest $\$50,000$, depositor will have to wait till solvency process completes.

In second method, that is, purchase and assumption method, the FDIC will choose a willing partner to take over entire liabilities of the failed bank. In this case, depositor will not loose a single penny.

Hence, depositor would like to see that the FDIC apply the second method, that is, purchase and assumption method to recover his full deposit.

:Final Answer

Considering the second case, when the depositor has only $\$200,000$in the bank. Since the FDIC covers first$\$250,000,$ the amount of $\$200,000$ deposited by the depositor is safe and he will get back his full $\$200,000$, if the bank fails. Hence, in this case, depositor will like, the FDIC should apply payoff method.