Principles of Macroeconomics / Unit 12 MAC 1106 short lesson, about 20 seconds
Deposit Insurance and Lender of Last Resort
Captions available
The idea
Two defences protect a fractional reserve system. Deposit insurance guarantees balances up to a limit, funded by premiums on banks. The central bank also lends as a last resort to solvent institutions.
In practice
The second is why the Fed was founded after a banking panic.
Where people slip
Insurance stops runs; the lender of last resort addresses illiquidity, not insolvency.
Your place on the trail
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Unlocks
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