Praxis II Citizenship

Answer: C - The Federal Deposit Insurance Corporation was created to directly help prevent bank runs. At the onset of the Great Depression and previous financial calamities, market instability frightened bank customers. They feared that the banks would fail and they (the customers) would lose their savings. Ironically, bank runs virtually guaranteed that the events customers were specifically attempting to avoid (bank failure and consumer financial loss) would occur. The FDIC was created in 1933 to insure all bank accounts up to $250,000, guaranteeing that even if a bank failed (ran out of money), consumers could recover their bank balances up to $250,000. The FDIC was not created explicitly to prevent bank failures, recessions, or depressions, though the prevention of those events are hoped-for consequences of preventing or limiting bank runs. Since 1933, no account holder has lost a penny of insured money, even when their bank has failed.