Fdic Insured Banks

Then the banks invest in FDIC insured deposits grade bonds? If yes, are there any restrictions on the percentage of deposits that can be invested in bonds?

Banks are FDIC insured all deposits and use the money to invest in a variety of things which may include stocks, bonds, etc., but their most profitable investments are paying this money in the form of credit card holders warranty card to pay 12-30% + a year return.

Other investments include loans such as residential and commercial mortgages, which did not work very well.

Yes. This is how banks make money. They invest our deposits.

Yes - the FDIC requires that they retain a certain amount of their deposits on hand, but others can be invested in bonds, if the bank wants.

Dude, the banks can do whatver they want with your money.
By the FDIC insurance on your deposits .... which really does not mean squat the more you are guaranteed not to lose your money because the FDIC will cover the difference if the bank goes belly up. Regarding what they do with the money from anyone .... they take risks every day ... crazy bankruptcy, so they bailed out with taxpayers' money. LOL Ever heard "too big to fail"? go there.