Question 82

Premiums paid by member financial institutions

The Federal Deposit Insurance Corporation (FDIC) primarily insures deposits through the premiums paid by member financial institutions. These premiums are collected to fund the deposit insurance system, ensuring that depositors are protected in the event of a bank failure.

A) Corporate money appropriated by Congress

This option is incorrect because the FDIC does not rely on corporate money appropriated by Congress for its insurance fund. Instead, the FDIC raises funds through premiums paid by banks and other financial institutions, not through governmental appropriations.

B) Premiums paid by member financial institutions

This option is correct as it accurately describes the primary funding source for the FDIC. Member banks pay insurance premiums, which are then used to insure deposits and maintain the stability of the banking system.

C) Tax levied on banks and hedge funds

This option is incorrect because the FDIC does not use taxes levied on banks and hedge funds as a source of funding for deposit insurance. The FDIC's funding mechanism is based on premiums rather than taxes.

D) Tariff on foreign exchange rates

This option is incorrect, as tariffs on foreign exchange rates do not contribute to the FDIC's deposit insurance funding. The FDIC's financial resources are derived from premiums paid by member institutions, not from trade tariffs or foreign exchange levies.

Conclusion

The correct answer is clearly option B, as it highlights the essential role that premiums from member financial institutions play in funding the FDIC's deposit insurance. All other options fail to accurately represent the source of funding for the FDIC, illustrating a misunderstanding of how the insurance system operates.