What Would Happen If Everyone Withdrew Money From Bank
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When you put money in a bank, it doesn't sit in the vault. Most banks keep cash on hand equal to 5 percent of their total deposits; the rest of the money is out on loan to other customers. Normally that works fine, but when the total number of withdrawals exceeds the available cash, it tin can trigger a "bank run."
Bank Run
Bank runs normally start when depositors worry the bank might fail. Depositors rush to withdraw coin before the bank shuts down; the depository financial institution exhausts its cash reserves; and the bank then liquidates assets and calls in loans to notice more coin. If the bank can't sell enough avails to cover the withdrawals, information technology may take to close. Banks that practise cover the run often terminate up financially crippled from selling avails cheap to raise money.
FDIC
The stock market crash of 1929 left millions of Americans scared, which led to multiple bank runs over the next few years. Some banks shut downward and depositors who hadn't withdrawn their money lost everything. In 1933, the government created the Federal Eolith Insurance Corporation; by insuring deposits, the government hoped to increment consumer confidence and discourage future runs. As of 2012, FDIC covers your losses up to $250,000 per bank if your coin is in a checking account, money-market account or certificate of deposit. Other investments, such as mutual funds, aren't protected.
Bank Failure
If the banking concern does neglect -- whether because of a run or some other reason -- commonly another depository financial institution buys information technology or the FDIC takes information technology over until a heir-apparent tin can be found. The FDIC may non announce the failure to avoid making the run worse: instead, the bank closes on a Friday and reopens under new ownership on Monday. The new bank takes over your insured deposits, but you may lose whatever deposits or investments that weren't covered. Near bank services, such as ATM withdrawals, continue without break.
Big Picture
As long every bit you and your fellow business relationship holders redeposit your coin in a better bank, one failure isn't a huge problem. If you start to worry that all the banks are potentially unsafe, you may non want to redeposit: Putting the money outside the state or in a wall safe may seem a meliorate bet. When that happens on a grand scale, the entire banking system suffers as the greenbacks dries up. The U.S. government created the FDIC precisely to prevent that kind of disaster.
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Writer Bio
A graduate of Oberlin College, Fraser Sherman began writing in 1981. Since so he'southward researched and written newspaper and mag stories on urban center government, courtroom cases, concern, real estate and finance, the uses of new technologies and pic history. Sherman has worked for more than a decade as a paper reporter, and his magazine manufactures accept been published in "Newsweek," "Air & Infinite," "Backpacker" and "Boys' Life." Sherman is also the author of 3 film reference books, with a fourth currently under way.
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