The provision of deposit insurance is similar to the FDIC selling a call option on the assets of a bank allowing the FDIC to exercise the option and seize the bank's assets if the bank becomes insolvent.

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Quizplus · Accepted Answer

Deposit insurance, provided by the FDIC, is more akin to the FDIC offering protection to depositors against the loss of their deposits if a bank fails, rather than the FDIC having an option to seize a bank's assets. The primary purpose is to maintain public confidence in the banking system, not to give the FDIC an option to acquire assets.

The Provision of Deposit Insurance Is Similar to the FDIC