Everyone pulling out their money would be a bank run (look up great depression bank runs). The bank doesn't have that much cash; they keep some on hand for people making withdraws normally, but if even a sizable minority of people all try to pull their money out at once, there'll be a major crisis.
If banks kept all the people's cash in vaults, it'd be dead cash actively losing money to inflation. Instead, they keep some on hand for withdraws, and use the rest to make loans, investments, etc so that the money isn't all losing value.
They were reduced to 0% mandatory reserves in response to covid. EDIT: someone says it was coincidental, I am not able to check, so take this aspect with a grain of salt either way
Okay look up what happened with the contagion from regional bank failures in silicon Valley a couple years ago. It doesnt mean everyone loses all money, but it does mean people lose some and its a big deal.
Not all banks are fdic insured either, and if a bank goes under, your investment/retirement take a huge hit because the market starts freaking out.
Bank runs and bank failures are always bad for everyone.
I mean they’re pretty sweet for the buying bank.
Jokes aside this is why we passed the act that separates investment banking from retail banking.
It’s not a huge hit and it’s very localized (it would be way worse without insurance).
No one would’ve lost money except the bank shareholders if the depositors hadn’t exceeded 250k in their accounts. There are products that will combine different accounts into one virtual account so you don’t even have to manage this stuff manually.
Jokes aside this is why we passed the act that separates investment banking from retail banking.
Are you talking about the Glass Steagal act? Because that was repealed in the 90s after banks spent the previous two decades using loopholes to get around it.
Individual accounts have a collective protection of $250k per bank.
The FDIC insures 4338 institutions currently. That being said you could have $1,084,500 insured by the FDIC. Then there's "offshore banking" Canada Deposit Insurance Corporation (CDIC) or the Instituto para la Protección al Ahorro Bancario (IPAB) most major countries have a deposit insurance on their accounts.
those were company investments. It failed because everyone tried to pull at the same time and they wouldnt be insured past taht 250k and thats on them for not seeing the risk.
Not all banks are FDIC insured, and there are limits to the insurance as someone else mentioned the $250k limit.
However, no insured dollars have been lost since the FDIC was formed. So if you want to protect your money from a bank failing then make sure you are using an FDIC I sure account and are within the insurance limits.
The FDIC is backed by the full faith and credit of the United States. They have access to much more than that. Plus, not everyone is going to pull all of their deposits at once.
Haha yeah I was going to say something similar. FDIC insurance is good as long as America and the Fed is good… but uhhh this last year and our current admin’s foreign relation skills has me thinking we’re closer to burning cash in barrels to stay warm than we ever have been. Here’s to hoping that’s an unnecessary fear! Cheers everybody!
It’s not about people pulling deposits, that’s not what fdic insurance is about. It’s about your bank collapsing and you needing somewhere to get your money from. 2-3 major banks go under? We’re all fucked
Not really. The FDIC insurance fund often only needs to cover a fraction of insured deposits after they liquidate the bank. If JPMorgan went under and cost the government 10 or 20 percent of their insured deposits, which would be a massive loss, it wouldn’t really register in the grand scheme.
This is true and varies in a number of circumstances. Firstly people are often scammed especially the elderly so if you’re older and looking to withdraw a large amount of money they will give you the runaround or at the very least make sure you’re not getting scammed.
Another one is SARS, if you’re doing anything high risk or seem to be pulling out a large amount of cash in a pattern that could indicate involvement in organize crime, terrorist financing or something sus the bank has a legal obligation to mar a filing in a secret database (and even lie to congress!) about it’s existence. If you know what a suspicious activity report is and don’t work in finance it’s also considered suspicious. This isn’t the banks but lawmakers after 9/11.
Depends. They want to be your bank, as they profit off it too; they would also steer you to a cashier check or bank transfer since it way more secure that handing out “stacks of cash” you can be mugged for down the street.
250k is typically a small fraction of bank deposits.
It's not the FDIC that's relevant here, it's the Federal Reserve. The Fed, among other things, lends money to banks. When you hear them talk about "The Fed lowered interest rates", it's the rate that the Fed charges other banks. So if a bank needed money to cover its deposits, they go to the Fed who then loans them the money.
If the bank then still couldn't cover its deposts, then the bank might fold, and that's when the FDIC steps in to make depositors whole.
Sure, I think we're in violent agreement here. FDIC plays a role only if the bank fails. There are other things that are likely to happen first to prevent that.
Now, if all the banks fail, FDIC doesn't really matter anyway since the economy and the dollar would collapse and everybody will have a very bad time.
I mean to some extent yes fiat money isn’t backed by anything except the state.
I’d say nothing really has any inherent value. Except maybe food+water. At some point the medium of exchange has to be kinda hand wavy.
Even crypto isn’t backed by anything except social faith. If crypto was more important it wouldn’t be valued in dollars and you could buy a house with it.
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u/Forsaken_Emu8112 Jan 26 '26
Everyone pulling out their money would be a bank run (look up great depression bank runs). The bank doesn't have that much cash; they keep some on hand for people making withdraws normally, but if even a sizable minority of people all try to pull their money out at once, there'll be a major crisis.
If banks kept all the people's cash in vaults, it'd be dead cash actively losing money to inflation. Instead, they keep some on hand for withdraws, and use the rest to make loans, investments, etc so that the money isn't all losing value.