The insurance is meaningful in that its mere existence can prevent financial institutions from collapsing in the first place. If everyone knows that FDIC/CDIC w

The insurance is meaningful in that its mere existence can prevent financial institutions from collapsing in the first place. If everyone knows that FDIC/CDIC will keep their balances safe and sound, they're less likely to make a run on the bank in times of uncertainty. Bank runs can turn a bank insolvent very quickly, especially when depositors don't need to wait in lines, but can instead tap on their banking apps. Also keep in mind that the financial system is in many ways quite fragile: the failure of one bank makes other bank failures more likely. FDIC/CDIC helps prevent the dominos from falling as easily as would otherwise happen if deposits weren't guaranteed. As for where the funding comes from...the FDIC requires payment into the insurance pool by member institutions, so it's not the government bailing out the depositors each time a bank fails. But if the FDIC pot of money is exhausted, the U.S. Government will still guarantee it by act of Congress. I'm not sure how this works in Canada, however.