To prevent bank runs and the consequent bank failures, the United States established the ________ in 1934 to provide deposit insurance.

Question

BlackTom AI · Accepted Answer

The FDIC (Federal Deposit Insurance Corporation) provides deposit insurance that prevents bank runs by assuring depositors their money is safe.

1) Relevant knowledge points and concepts
- Bank runs occur when depositors panic and withdraw funds en masse, threatening bank solvency.  
- Deposit insurance guarantees depositor funds up to a limit, removing the incentive to withdraw during panics and thereby stabilizing the banking system.  
- The FDIC was established in the 1930s during the New Deal era to provide that federal deposit insurance.

2) Step-by-step reasoning
- Identify the problem: widespread bank runs and failures during the Great Depression undermined confidence in banks.  
- Identify the policy tool that addresses the problem: deposit insurance directly reduces panic-driven withdrawals because depositors know their funds are protected.  
- Determine which institution creates and administers deposit insurance in the United States: that institution is the FDIC.  
- Therefore, the organization established to provide deposit insurance and prevent bank runs is the FDIC.

3) Calculations/intermediate steps
- No numerical calculations are required; the solution is a conceptual identification of the correct agency.

4) Why the correct answer is correct
- The FDIC was created to insure deposits, supervise banks for safety and soundness, and restore public confidence. Because insured depositors need not withdraw funds in a panic, deposit insurance is effective at preventing bank runs and consequent failures—exactly the policy objective described in the question.

5) Why the other options are incorrect
- Federal Reserve: central bank that manages monetary policy and acts as lender of last resort, but it does not provide retail deposit insurance.  
- SEC: Securities and Exchange Commission regulates securities markets and investor protection, not bank deposit insurance.  
- ATM: Automated Teller Machine is a piece of banking technology for cash access, not an institution or insurer.

6) Conclusion
Given the role of deposit insurance in preventing bank runs and the historical creation of a federal insurer in the 1930s, the correct answer is a. FDIC, which matches the provided answer.

To prevent bank runs and the consequent bank failures, the United States established the ________ in 1934 to provide deposit insurance.Single choice

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