Or take the case of Bedrock Bank . . .
Bedrock Bank Gets Too Big Too Fast
Bedrock Bank’s new president was determined to turn his bank into the region’s biggest lender. Bedrock’s loan officers got the message and started making as many loans as they could for condominium developments, shopping centers, office buildings, and high-priced suburban housing developments. Loan applications were not always checked as closely as they had been in the past, and some of the loans were approved more quickly than they had been in the old days. But nobody seemed concerned because the local economy was strong and real estate values were rising rapidly.
Everything seemed fine; everyone was making money. But then the economy slowed down, and things took a turn for the worse. The weak economy forced many businesses to close, leaving lots of vacant office space. Real estate values plummeted, and many developers fell behind on their loan payments.
In the end, Bedrock Bank was losing so much money on bad real estate loans that government regulators were forced to step in and close it. The regulators tried to find a buyer for Bed-rock, but no other bank wanted to get stuck with all the loans that had gone bad. Eventually, another bank agreed to buy Bedrock if the federal government would agree to keep many of the problem loans.
DO YOU LOSE MONEY IF YOUR BANK FAILS?
The Federal Deposit Insurance Corporation (FDIC) has protected bank deposits since 1934. In all that time, no one has lost money that was FDIC-insured. Federal deposit insurance covers most types of deposits, including savings deposits, checking deposits, and certificates of deposit. The basic insured amount is $250,000.
In the days before federal deposit insurance, the U.S. banking system was plagued by bank “runs” or “panics.” At the slightest hint of trouble, depositors would run to the bank and line up to withdraw their money. All too often, only the first few people in line had any hope of ever seeing their money again; others lost everything. Even healthy banks sometimes failed after rumors caused depositors to panic and withdraw their money.
For many years, the public seemed willing to accept the losses. But then came the Great Depression of the 1930s, and financial pressures forced thousands of banks to close their doors forever. Losses ran into the hundreds of millions of dollars, and many people lost their life savings.
The wave of bank failures shattered public confidence in the banking system, and Americans looked to the federal government for help. Congress responded by establishing the FDIC, which provided deposit insurance coverage of up to $2,500 per depositor. Public confidence rebounded, and bank failures declined from approximately 4,000 in 1933 to 62 in 1934.
Over the years, the federal deposit insurance limit has increased, and federal deposit insurance has helped to maintain public confidence in the U.S. banking system. Bank failures have not been eliminated, but long lines of panic-stricken depositors have become an uncommon sight.
DO YOU LOSE MONEY IF YOUR BANK IS ROBBED?
No. Nearly all banks have private insurance that covers them if they are robbed. (It is not the same as federal deposit insurance.)
In addition, most banks take elaborate measures to safeguard the cash and other valuable items left in their care. Bank vaults have long been protected by reinforced concrete walls, time locks, and metal alloy doors that resist drilling and explosions.
At one time, armed security guards stood watch over banks, but today most banks seem to have decided (wisely) that they would rather not expose their customers and employees to gunplay. Shotguns and revolvers have been replaced by closed-circuit television cameras that maintain a constant watch over everyone who enters or exits the bank.
Another innovation is the exploding dye pack. In certain cases, bank employees are able to place a package of red dye in with the robber’s stash of stolen cash. Later, when the crook opens the stash, the concealed dye pack explodes, covering the robber and the ill-gotten money with dye that won’t wash off.
