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Explain the purpose of the Federal Deposit Insurance Corporation.

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kisstopher603 | (Level 1) Valedictorian

Posted May 7, 2012 at 1:41 PM via web

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Explain the purpose of the Federal Deposit Insurance Corporation.

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pohnpei397 | College Teacher | (Level 3) Distinguished Educator

Posted May 7, 2012 at 1:47 PM (Answer #1)

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The Federal Deposit Insurance Corporation (FDIC) was created as part of the New Deal following the Great Depression.  The purpose of the FDIC was to ensure that people would not lose the money they had deposited in banks if those banks should fail.

Early in the Great Depression, many banks failed.  The money that people had deposited in those banks was largely lost.  This made many people poor since they had just lost everything they had saved.

The government wanted to guard against a recurrence of such problems.  Therefore, it created the FDIC, which guarantees that depositors will get their money back up to a certain (rather high) limit. This protects depositors from being harmed by the mistakes (such as making excessively risky loans) their banks make.  It also protects the economy from the damage that would be caused if millions of people were to lose their savings.  

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