3 ms·

Yes, which is why, prior to the development of the FDIC and other deposit insurance systems, every 20 years or so a whole bunch of banks would fail, all at once

Yes, which is why, prior to the development of the FDIC and other deposit insurance systems, every 20 years or so a whole bunch of banks would fail, all at once, and destroy the country or even the world's (depending on exactly how many failed) economy for a while. This is why deposit insurance is so important, and their absence is so striking in things that want you to believe that they are a bank and treat like a bank, but are not regulated or insured like a bank.

runeks 4y ago
Deposit insurance became necessary because the government started forcing banks to replace the highly commercial bills in their balance sheet with illiquid government bonds (cf. The National Banking Acts of 1863 and 1864). When merchants realized this, they revolted by withdrawing their funds from the banks in question. Remember: back then, the only users of bills were merchants (not consumers) since bills were a highly liquid earning asset where businesses could park their capital while they didn’t need it themselves. Consumers paid in coin — silver or gold.
- dragonwriter 4y ago
  > Deposit insurance became necessary because the government started forcing banks to replace the highly commercial bills in their balance sheet with illiquid government bonds Deposit insurance started (like reserve requirements, though initially in different states) as a state-level mandate during the Free Banking era before the 1863 Act; the need for it was not driven by the 1863 & 1864 acts. > Remember: back then, the only users of bills were merchants (not consumers) since bills were a highly liquid earning asset where businesses could park their capital while they didn’t need it themselves. No, the reason consumers would not prefer to use banknotes included risk (due to lax regulation and rampant outright fraud) and limited practical liquidity for consumers (since they would generally only be redeemed by the issuing bank, and the banks then were not giant conglomerates where you could go to a branch of the right bank wherever you were, though this was in some places mitigated somewhat by interbank arrangements like the Suffolk system in New England.)
- giaour 4y ago
  > Deposit insurance became necessary because the government started forcing banks to replace the highly commercial bills in their balance sheet with illiquid government bonds (cf. The National Banking Acts of 1863 and 1864). I'm sorry, but this is some flat-earth nonsense. It sounds like you have a particular ideological axe to grind and are trying to make the facts fit your narrative. Deposit insurance in the US arose in the 20th century in response to consumer bank runs. The original deposit insurance schemes arose in the wake of the panic of 1907, and the FDIC was established in 1933.
hammock 4y ago
Even taking everything you say at face value, the world economy grew massively without the need for federal deposit insurance, and there were plenty of banks then too- real banks. They were just banks without federal deposit insurance
- lmm 4y ago
  Sure - but there were also plenty of regular folks losing all their savings. And that was an era when it was a lot more practical to keep cash yourself and use that for everyday living.
- rchaud 4y ago
  > the world economy grew massively without the need for federal deposit insurance You make it sound like other countries have never had banking crises identical to those in the US, and responded to them by also establishing deposit insurance (and a host of other regulations for commercial account holders). Also, I don't understand the relevance of "world economy grew massively without deposit insurance". The point of deposit insurance is to give peace of mind to depositors and establish trust in the banking system, not make GDP go up.

runeks 4y ago

Deposit insurance became necessary because the government started forcing banks to replace the highly commercial bills in their balance sheet with illiquid government bonds (cf. The National Banking Acts of 1863 and 1864). When merchants realized this, they revolted by withdrawing their funds from the banks in question. Remember: back then, the only users of bills were merchants (not consumers) since bills were a highly liquid earning asset where businesses could park their capital while they didn’t need it themselves. Consumers paid in coin — silver or gold.

dragonwriter 4y ago
> Deposit insurance became necessary because the government started forcing banks to replace the highly commercial bills in their balance sheet with illiquid government bonds Deposit insurance started (like reserve requirements, though initially in different states) as a state-level mandate during the Free Banking era before the 1863 Act; the need for it was not driven by the 1863 & 1864 acts. > Remember: back then, the only users of bills were merchants (not consumers) since bills were a highly liquid earning asset where businesses could park their capital while they didn’t need it themselves. No, the reason consumers would not prefer to use banknotes included risk (due to lax regulation and rampant outright fraud) and limited practical liquidity for consumers (since they would generally only be redeemed by the issuing bank, and the banks then were not giant conglomerates where you could go to a branch of the right bank wherever you were, though this was in some places mitigated somewhat by interbank arrangements like the Suffolk system in New England.)
giaour 4y ago
> Deposit insurance became necessary because the government started forcing banks to replace the highly commercial bills in their balance sheet with illiquid government bonds (cf. The National Banking Acts of 1863 and 1864). I'm sorry, but this is some flat-earth nonsense. It sounds like you have a particular ideological axe to grind and are trying to make the facts fit your narrative. Deposit insurance in the US arose in the 20th century in response to consumer bank runs. The original deposit insurance schemes arose in the wake of the panic of 1907, and the FDIC was established in 1933.

hammock 4y ago

Even taking everything you say at face value, the world economy grew massively without the need for federal deposit insurance, and there were plenty of banks then too- real banks. They were just banks without federal deposit insurance

lmm 4y ago
Sure - but there were also plenty of regular folks losing all their savings. And that was an era when it was a lot more practical to keep cash yourself and use that for everyday living.
rchaud 4y ago
> the world economy grew massively without the need for federal deposit insurance You make it sound like other countries have never had banking crises identical to those in the US, and responded to them by also establishing deposit insurance (and a host of other regulations for commercial account holders). Also, I don't understand the relevance of "world economy grew massively without deposit insurance". The point of deposit insurance is to give peace of mind to depositors and establish trust in the banking system, not make GDP go up.