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When the Federal Deposit Insurance Corporation (FDIC) created deposit insurance after the Great Depression, what effect...

When the Federal Deposit Insurance Corporation (FDIC) created deposit insurance after the Great Depression, what effect did this have on the occurrence of bank runs? Did the introduction of deposit insurance have the same effect on other financial markets, such as the stock or bond market? Explain.

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Answer - The creation of the FDIC helped to ensure and regain the trust of the public on the bamking structure of the country which jad been shattered by the bank runs earlier in the period. The FDIC aimed to insure the deposits of the bak with for the minimum amount of $ 250000. Hence a belief was developed tha the banks wont run now. Also the banks felt more secure and their liabilties were secure now , they were insured. Thus this reduced the bank runs to the considerable level. But the scope of FDIC was limited upto commercial banks only and it did not take the credit unions and other financial institutions under its scope. It mainly aimed to insure the deposits of the commercial banks only.

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