Final answer:
Deposit insurance, provided by the FDIC, protects individual bank deposits up to $250,000, subsequently maintaining financial stability and averting bank runs. The FDIC assesses and monitors banks' financial risks, covering nearly 5,000 institutions. Similar protections exist for pensions and workers' compensation, offering a layer of security against business failures.
Step-by-step explanation:
Deposit insurance ensures that depositors are repaid if a bank fails, providing financial stability. Participating banks pay a fraction of their deposits to the Federal Deposit Insurance Corporation (FDIC), where it contributes to the Guaranty Fund. This fund protects individual bank deposits up to $250,000, a limit raised from $100,000 in 2008.
The FDIC, established in the 1930s, has been successful in maintaining depositors' confidence, preventing bank runs, and ensuring that no insured depositor has lost money. Bank examiners assess banks' riskiness through asset and liability evaluations. The FDIC's protection covers approximately 4,914 banks as of the third quarter of 2021.
Other forms of financial protection include pension insurance, where employers contribute to the Pension Benefit Guarantee Corporation to secure retired employees' pensions, and workman's compensation insurance, funding benefits for employees injured on the job.