Deposit insurance protects bank customers if a deposit-insured depository institution fails. Bank customers don’t need to purchase deposit insurance; it is automatic for any deposit account opened at a deposit-insured bank. Deposits are insured up to a stated amount per depositor, per deposit insured bank.
The depository Insurance agency acts as the “Insurer” of the bank’s deposits, paying deposit insurance to the depositors up to the insurance limit.
Scenario When a Bank Fails
A bank failure is closing a bank by a banking regulatory agency like RBI in India. It generally results from a bank’s inability to meet its obligations to depositors and others. In the unlikely event of a bank failure, the banking regulations act quickly to ensure depositors get prompt access to their insured deposits.