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How can deposit insurance reduce “bank runs”?

How can deposit insurance reduce “bank runs”?

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Answer #1

Bank run is occurred when many clients withdraw their money from a bank , because they believe the bank may cease to function in the near future.

Deposit insurance system insure each depositor up to a certain amount,so that depositor savings are protected even if the bank fails.this removes the incentive to withdraw one'deposit simply because others are withdrawing theirs.however depositor may still be motivated by fears they may lack immediate access to deposit during a bank reorganization.government deposit insurance program can be ineffective if the government itself is perceived to be running short of cash

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