Economic Impact
When a nation state has a deposit insurance scheme, foreign investors (aka non-resident bank depositors) are more likely to passively deposit larger amounts of money in the banks of said nation state (that has a bank deposit insurance scheme).
Having a bank deposit insurance scheme (for all practical purposes) guarantees that a nation state will more likely have a higher rate of passive foreign investment (within the margin of insurable amount).
Passive foreign investment in a nation state’s finance system allows for more lending to be made when global finance system conditions constrict the amount of lendable money. There has been substantial research done over the years on the impact on foreign investment of bank deposit insurance schemes.
Deposit insurance enables banks to increase the money supply, without it underfunded banks might suffer a bank run which is prevented by the insurance. This encourages inflation.
Read more about this topic: Deposit Insurance
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