|
|
Imagine you live in the
United States in 1931. The Great Depression is ravaging the country. You realize
that you may soon not have a job or a house, so you rush to the bank to retrieve
your life savings.
Through the windows, you
see that the bank is dark and silent. Standing out front is a man who answers
your silent question:
"Sorry," he says. "The
bank failed yesterday."
Your life savings are gone
and you will never get them back. Back in the Great Depression, this happened to
many, many real people.
Why do banks fail? It has
to do with the way they operate:
People give their money to
a bank, and the bank pays them interest. The bank loans the money you gave them
to other people, who pay the bank a higher rate of interest than what the bank
gives to you. The difference in interest is how banks earn money. Beyond this,
they often loan out far more money than they actually have.
Banks work because people
trust them. People trust that if they give their money to a bank, they will be
able to come back and get it later. And this is generally true. But in times of
economic instability, people lose their trust in banks, and there is often
what's called a "run on the bank", when everyone tries to get their money
out at the same time. If that happens, the bank will fail, because they do not
actually have all the money that they have been given. During the Great
Depression, millions of people lost huge amounts of money when their banks
failed.
But luckily, if you are
American (or rich enough to put your money in an American bank), this won't
happen to you today. When Franklin Delano Roosevelt came into office in 1933
during the Great Depression, he created the Federal Deposit Insurance
Corporation, or FDIC.
The FDIC insures deposits
up to $100,000. That means if you put your money in a bank and the bank fails,
the government will pay back the money you deposited, up to $100,000.
This policy has a double
effect. Not only does protect people's savings, but it also gives people more
trust in their banks, which in turn prevents banks from failing.
So next time you put money
in a bank, remember Franklin Delano Roosevelt. Because of him, you don't have to
worry about losing your money. And that's something to appreciate.
*Singing the Jeopardy
song*
JasmineK
Sources:
Federal Deposit Insurance
Corporation. http://www.fdic.gov/index.html
Obringer, Lee Ann. "How
Banks Work." http://money.howstuffworks.com/bank.htm
Editor's Note:
Great report, JasmineK! I just have to point something out for those readers who
missed it: You made a very subtle joke at the end there ??? money that gets
interest in a bank is "appreciating" in value, which makes "And that's something
to appreciate" a delightful little pun. I love it! :-)
|
