Steadfast FinancesWould You Make a Run on Your Bank? - Steadfast Finances

Would You Make a Run on Your Bank?

Filed in Banking , Financial Crisis , Online Savings Accounts 6 comments

Human nature is a curious thing to watch when you stand back, remove yourself from the situation, and just observe.  If you have ever practiced the art of “people watching” sitting at a park bench or having lunch in a food court, you know exactly what I’m talking about. This morning, as I watch Lehman Brothers go bankrupt and Merrill Lynch get bought out (to potentially avoid the same fate), I’m intrigued to find a few emails from friends asking if they should be worried about their own personal bank accounts.  I have paraphrased one of these emails from Friend XYZ’s below:

Matt – What the hell?  I get back from vacation and find Wall Street in a mess?  What gives?  Do I need to put my money under a mattress or what?

The short answer for his situation is:  NO!

Friend XYZ does not need to pull money out of his account because he has less than $100,000 in this online savings account, as well as an adequately funded checking account with a local brick and mortar bank.  If he had over $100,000, I would suggest opening a new account with a different bank to deposit any remaining funds over $100,000 so that every dollar is FDIC insured.  Most of us don’t have this problem, but if you did, you probably have your finances in order to prevent such a problem from arising in the first place.

What I find so intriguing was his reaction to this emotional contagion, or how the emotions of everyone around him swayed his almost stoic personality to near panic levels.  For this reason, I often suggest that most people should avoid the daily financial news because it’s so overly dramatized and causes even the most resolute people to get caught up in the “Doom & Gloom” headlines.

Taking this one step further, my big question is…

Would you participate in an old fashioned bank run?

When I think of making a run on a bank, I immediately flashback to It’s a Wonderful Life with Jimmy Stewart.  One of the more famous scenes involved poor George Bailey when he has a storefront full of panicked patrons who wanted THEIR money back before THEIR hard earned cash disappeared.

Given recent bank failures, such as IndyMac’s failure earlier this summer, one is suddenly confronted with the realization their bank could potentially fail.

So what would you do?

  • Would you immediately race to your bank to withdraw your money quickly as possible?
  • Would you sit back and hope your bank can remain solvent enough to keep their doors open?
  • Would you rely on the FDIC to insure your deposits?
  • Would you take out just enough cash to get by and hope things work out for the best?

As I said, human nature is a curious thing so I am interested in your thoughts.

Questions / Comments / Concerns ?

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Posted by CJ   @   15 September 2008 6 comments
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6 Comments

Comments
Sep 15, 2008
8:58 pm
#1 Jon Kepler :

I never keep a particularly large amount of money at one specific bank. However, if I ever felt my brokerage account was at risk, that would be a different story!

Sep 16, 2008
12:10 pm
#2 Jon Kepler :

Connie, that’s the scene I always think of too. Had to think about it for a minute.

Sep 16, 2008
10:50 am

Heh. I always think of the scene in Mary Poppins where the little boy causes a run on the bank.

I also giggle when people talk about putting their money under a mattress. That’s worse than depression-era thinking!

Sep 16, 2008
11:15 am
#4 Matt :

Yeah, the mattress is not the way to go. If we get to that point, the value of paper money would likely be useless anyway.

I wonder what the default currency would be… bottled water?

Jan 21, 2010
8:18 am
#5 Ariel :

Saw this as a related post in my email today. Interesting to think about where we were and where we are today. Check out the MoveYourMoney.info movement. Personally, I combat this by choosing to bank with local bank or credit unions, I feel my money is safer in my community.

Jan 21, 2010
11:09 am
#6 Matt SF :

Love the MoveYourMoney.info movement and I’ve been on my soapbox about it for almost a year with my anti-Too Big To Fail message. Glad to see someone more popular than I took it and made it a legit movement.

You can see a few here:

http://steadfastfinances.com/blog/2009/11/18/fighting-back-against-the-too-big-to-fail-banks/
http://steadfastfinances.com/blog/2009/12/27/credit-unions-begin-anti-too-big-to-fail-advertising-campaign/
http://steadfastfinances.com/blog/2010/01/17/best-reads-of-the-week-the-moving-on-up-edition/ (Included Bill Maher’s video endorsement here)

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