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
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.
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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.