Pros And Cons Of Federal Expository Insurance

2. Restrictions on which depository institutions are eligible for government-sponsored depository insurance; be sure to address foreign banks in this discussion Depository insurance is an insurance measure that is implemented so as to protect the depositors of a financial institution in full or in part from the losses occasioned by the financial institutions inability to pay its debt when they are due. Depository insurance exists because of the allowance that banks have to invest the money that is deposited with them and there is generally the risk that borrowers may fail to pay the money loaned to them. The deposits can also be withdrawn from the banks with little or no notice which may result in bank runs where there is a threat of insolvency. The Federal Deposit Insurance Corporation is the body that is tasked

There is generally a grading system on the safety and soundness by the regulators and the banks that score a 4 or 5 out of 5 ends up in the list. The banks get a 90 day challenge to figure out what put them in the list. Within this time the FDIC begins to collect the necessary information on the banks assets, deposits and the overall financial picture of the bank. If by the end of the deadline the bank has not made significant changes and acquired a 3 rating then the FDIC begins a bidding process with other banks that may want to acquire the failing banks assets and deposits. Where the capital levels of the bank are low then efforts to restore this level are made. Critically undercapitalized banks get this 90 days period to correct this or face closure. The information that the FDIC gathers in this 90 days helps them come up with the best ways to market the bank and to also measure the extent of the problem, evaluate them and estimate the value of the bank’s assets then formulate a strategy that will be used to divide those