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The FDIC couldn’t handle a run on every bank. If people thought there would be a massive run, they’d rush to withdraw their money despite the FDIC. So it’s real
by mikeash 8y ago
The FDIC couldn’t handle a run on every bank. If people thought there would be a massive run, they’d rush to withdraw their money despite the FDIC. So it’s really both: belief in the FDIC’s ability to handle small runs gives people the belief that there won’t be big ones.
- steve76 8y agoI believe the majority of the balance sheets are on the sideline, based on the demand for currency in the world? So the real fallout from a bank run will be price inflation without wage inflation?
- pmalynin 8y agoThe govt could just print the money out. Sure inflation, but when your economy is crashing inflation will encourage spending
- throw0101a 8y agoI don't think there would be inflation. Inflation begins (IMHO) when there's a lot of money in circulation: too much cash chasing too few resources, bidding up prices. In a bank run, people are taking home bills because they want them to be "safe" in case the bank goes under (never mind FDIC, which most people probably do not understand). Money sitting under the proverbial or literal mattress is not in circulation, and not going to cause the bidding-up of prices.
- gbear605 8y agoIt wouldn’t immediately cause inflation, but eventually they would start spending that money under their mattress, causing the amount of money in circulation to increase.
- 8note 8y agowouldn't that happen anyways? if people have money on banks, they're still going to use it eventually. the thing that changes if the money is under mattresses is that the banks stop having money to lend and invest. I don't know if that creates inflation or not?
- ric2b 8y agoYes, but now when it happens the newly created money is there as well.
- throw0101a 8y agoAt some point the panic would subside and they'd put their money back, though perhaps at another institution.
- pishpash 8y agoThere won't be inflation in that circumstance. The whole point would be to counter deflation with just enough money to bring about normal productivity before things really go south and nobody works at all. In the long run, the injection would need to be unwound when things are back to normal though, or else there might be inflationary phenomena in one form or the other. It's a tricky maneuver to execute because you're doing it on the broad economy, not specific sections.
- mywittyname 8y agoI'm curious how people envision a bank run looking in the era of digital banking. You already can't get much cash from a bank in good times because hardly anyone uses cash anymore for large purchases. Presumably Venmo, Visa et al will work just fine.
- StudentStuff 8y agoYou can walk into a bank and ask for all the cash in your account, if its over a certain dollar amount they'll ask you to fill out an IRS form, otherwise there is nothing barring getting cash from a bank.
- mikeash 8y agoThey won’t have a huge amount of cash on hand, though. I imagine a modern bank run would happen in slow motion.
- StudentStuff 8y agoIf your pulling out more than $50k, its advisable to call the bank branch and give them a heads up, as they'll shuffle money to the branch on your behalf.
- mywittyname 8y agoYou have to call ahead for "large sums" because banks don't hold that much cash on-site, so you have to wait for the next delivery of cash so they can get it for you. And the definition of "large sum" for your local bank branch is probably smaller than you think. But while people are waiting for their cash, if they can still use digital banking, then they will probably stop worrying about it before their cash is actually delivered.
- dredmorbius 8y agoThe Federal Reserve has unlimited power to create money, which is what backstops the FDIC. It is not bound by any financial resources or constraints. Organisationally, the FDIC might be challenged by massive bank collapses, though it's addresed this in recent past through forced bank mergers. https://www.fdic.gov/deposit/insurance/assessments/mergers.html https://www.fdic.gov/deposit/insurance/assessments/mergers.h... https://en.wikipedia.org/wiki/List_of_banks_acquired_or_bankrupted_in_the_United_States_during_the_financial_crisis_of_2007–08 https://en.wikipedia.org/wiki/List_of_banks_acquired_or_bank...