What is the function of the Deposit Insurance Fund (DIF)?

The Deposit Insurance Fund (DIF) serves a crucial role in the financial system by managing the insurance funds that protect depositors. This means it ensures that depositors' funds are safeguarded in the event that an insured financial institution fails. The DIF is primarily funded by premiums paid by member banks, and its purpose is to provide a safety net for depositors, instilling confidence in the banking system.

If a bank fails, the DIF activates to pay depositors their insured funds, up to the legal limit. By fulfilling this function, the DIF helps maintain stability in the banking sector and protects consumers from potential losses, thereby reinforcing trust in the financial system. This role is essential in preventing bank runs and promoting a stable economic environment. The other options do not accurately reflect the specific purpose of the DIF, as it is not involved in issuing loans, setting interest rates, or directly providing capital for banks during crises.