The purpose of guarantee funds in safety and soundness regulation is to protect claim-holders when an FI collapses or fails.

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Guarantee funds are established to provide financial protection to claim-holders in the event that an FI fails or becomes insolvent. These funds are commonly used in safety and soundness regulation to promote stability and prevent systemic risk in the financial system. By providing a safety net for claim-holders, guarantee funds can help to restore confidence in the financial sector and minimize the negative impact of failures on the broader economy.

The Purpose of Guarantee Funds in Safety and Soundness Regulation