Learn something new every day
More Info... by email
A deposit insurance fund makes money available in the event of a bank failure to prevent losses. People with money deposited will receive a full refund, up to a certain amount, out of the fund. In some cases coverage may be offered through multiple deposit insurance funds to increase the amount of coverage, providing an assurance to customers with large accounts. Many countries have nationalized programs to provide basic deposit insurance, and individual additional insurance programs may be available for banks interested in enrolling.
Several sources provide money to keep a deposit insurance fund big enough to cover financial risks. One source is premiums charged to participating institutions, which must pay a percentage of the funds on deposit, typically, in order to remain part of the fund. If they handle high risk transactions and accounts, their premiums can be higher. The deposit insurance fund can also levy special assessments on members if it has concerns about risk exposure and worries the fund may not be able to cover large losses.
Government agencies may provide additional backing. This can be direct in the form of funds or government investments in the fund, or a promise of loans. In the event of an economic crisis where the deposit insurance fund cannot fully cover losses, loans from the government can kick in to offer compensation. The deposit insurance works smoothly; customers of the bank shouldn’t experience an interruption in access to their accounts when institutions are closed and reopened by trustees or acquiring corporations.
Regulators may supervise a deposit insurance fund. They compare the amount of money in the fund to the level of risk to determine if it meets guidelines. If the funds on deposit covered by the insurance are very high, it may not have enough money in reserve to cover failures. This requires special assessments to raise more funds.
If a bank participates in a deposit insurance fund, it should display signs with information about it. The signs indicate the bank is a full member and provide contact information for customers who want verification, along with information on the amount of insurance the bank carries. This can include the base amount covered by the fund as well as additional deposits secured by additional insurance. For example, in the United States the Federal Deposit Insurance Corporation (FDIC) covers up to $250,000 US Dollars (USD), and individual states have their own funds to cover sums higher than that.
One of our editors will review your suggestion and make changes if warranted. Note that depending on the number of suggestions we receive, this can take anywhere from a few hours to a few days. Thank you for helping to improve wiseGEEK!