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A deposit insurer moves from a flat rate to a risk-based premium. What changes?
AEvery insured bank now pays the same fixed amount
BPremiums are collected from depositors instead of banks
CThe ceiling on each insured account is lifted entirely
DA bank premium now varies with the risk it is running
Answer & Solution
Correct answer: D. A bank premium now varies with the risk it is running
1. Under a flat rate every insured institution pays at the same rate whatever it does with its money.
2. A risk-based system instead ties the premium to the risk the institution is running.
3. A riskier bank therefore pays more for the same cover.
4. The switch was made after a large number of bank and thrift failures showed the flat rate was mispricing that risk.
5. A flat rate is what the scheme moved away from, so choosing it reverses the change.
6. The party paying and the account ceiling are separate features and are untouched by how the premium is calculated.
_Source: OpenStax Introduction to Business (CC BY 4.0), Ch 15 "Understanding Money and Financial Institutions", section 15.4 Insuring Bank Deposits_
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