What role does the Federal Deposit Insurance Corporation (FDIC) play in the banking system?

The Federal Deposit Insurance Corporation (FDIC) plays a crucial role in providing stability and public confidence in the U.S. banking system by insuring deposits in member banks. This means that if a bank fails, depositors are protected up to the insured limit, which is currently $250,000 per depositor, per insured bank, for each account ownership category. This insurance helps to protect consumers and encourages individuals to keep their money in banks, knowing that their deposits are safeguarded even in the event of a financial institution's insolvency.

By reassuring depositors that their funds are secure, the FDIC significantly mitigates the risk of bank runs, where consumers withdraw their deposits en masse due to fears about a bank's solvency. This safeguard is essential for maintaining trust in the financial system, which is vital for the overall health of the economy.

The other options describe functions not performed by the FDIC, such as providing loans to banks, regulating mortgage lending practices, or managing monetary policy, which are responsibilities of other institutions like the Federal Reserve or relevant regulatory agencies.