Question

“Discount loans are no longer needed because the presence of the FDIC eliminates the possibility of bank panics.” Is this statement true, false, or uncertain?

Short answer

This statement is false.

Step-by-step solution

Step 1. Concept Introduction

This assertion is misleading. Since the FDIC protects up to $\$250,000$ per account doesn't take out the likelihood of a bank alarm. To place into viewpoint, despite the fact that the FDIC' s protection conceals all stores to $\$250,000,$ There is just sufficient protection considered for possible later use answerable for around $1\%$ of all stores at some random time. A progression of bank disappointments could make tension on the FDIC's stores and even can possibly totally deplete them. Assuming the FDIC declared they were out of stores, certainty inside the American financial framework would drop, prompting a possible spike in withdrawals.

Step 2.Final answer

In addition, there is roughly$1.7$Trillion dollars not covered by the FDIC insurance, while historically, most of this money is paid back, it is a hassle to do and not a guarantee. Those depositors could withdraw their funds leading to severe liquidity problems for the bank.

Discount loans help offset the possibility of a mass withdrawal and are therefore utilized to help inject liquidity within a market as a last resort.