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Creation of the FDIC encouraged reluctant depositors to put their money into the banking system. How...

Creation of the FDIC encouraged reluctant depositors to put their money into the banking system.

How could higher deposit insurance premiums for banks with riskier assets benefit the economy?

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Answer #1

Higher deposit insurance premium for bank with riskier asset benefit the economy as when the depositors had put their excess money into the banking system, it would help the overall banking system to have a larger money flow with them and it will also help Bank to get an additional kind of capital which will enhance their overall capital base and which will enhance the lending power of the bank. It will also enhance the overall money flow into the economy

So through enhancement of money flow into the economy, these depositors have helped these banks in gaining a larger deposit base and gaining a larger borrowing ability to so this will help the economy as there will be more of liquidity and money flow in the entire economy

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