What role does the FDIC play in bank failures?

The role of the FDIC (Federal Deposit Insurance Corporation) in bank failures primarily revolves around protecting depositors' funds through insurance. When a bank fails, the FDIC ensures that depositors do not lose their insured deposits, up to the legal limit, which currently stands at $250,000 per depositor, per bank. This insurance is a critical component of the banking system as it helps maintain public confidence in the safety of deposits, thereby preventing bank runs, which can exacerbate financial crises.

Additionally, the FDIC steps in to resolve failed banks in a manner that minimizes disruption to the financial system and is cost-effective for the insurance fund. By safeguarding depositors' funds, the FDIC plays a vital role in maintaining stability in the banking sector during times of financial distress. This function underscores its mission to promote public confidence in the nation’s financial system.