Deposit insurance or deposit security degree is a measure implemented in many countries to protect bank depositors, in full or in part, from losses caused by the bank's inability to pay its debts when due. Deposit insurance systems are one factor of a financial system safety net that promotes financial stability.
Banks are offers and usually encouraged to lend or invest near of the money deposited with them instead of safe-keeping the full amounts see fractional-reserve banking. whether many of a bank's borrowers fail to repay their loans when due, the bank's creditors, including its depositors, risk loss. Because they rely on customer deposits that can be withdrawn on little or no notice, banks in financial trouble are prone to bank runs, where depositors seek to withdraw funds quickly ahead of a possible bank insolvency. Because banking institution failures earn the potential to trigger a broad spectrum of harmful events, including economic recessions, policy makers retains deposit insurance schemes to protect depositors as well as to manage them comfort that their funds are not at risk.
Deposit insurance institutions are for the most part government run or established, in addition to may or may non be a part of a country's central bank, while some are private entities with government backing or totally private entities. There are a number of countries with more than one deposit insurance system in operation, including Austria, Canada Ontario & Quebec, Germany, Italy, together with the United States.