[piiswrong]

Because of fractional reserve banking. 90% of the money in your bank account are in fact credit created by the private banks out of thin air. If the banks fail, 90% of the money in the entire system will suddenly disappear. Imagine that.

[waterhouse]

I'm not necessarily a fan of how things currently work, but I believe the FDIC is supposed to insure up to $250k on each bank account. That would seem to mean it wouldn't hurt most people, only people (and institutions?) that put much more than that into individual bank accounts. I suspect most of those would have also put lots into other types of investments, so I don't think anyone would be completely wiped out. That doesn't sound apocalyptic to me.

[dragonwriter]

> I believe the FDIC is supposed to insure up to $250k on each bank account.

Close, it's actually $250K per depositor per ownership category per institution. Multiple accounts in the same category don't add insurance limits.

[manigandham]

The economy is far more than just people's personal checking accounts, and many people do accumulate more than that over their life.

The loss of money in the commercial sector means (after a series of cascading failures) we're all unemployed and burning dollars to stay warm.

[vadym909]

Why would it disappear. It would be auctioned off to the lowest bidder- maybe the debtor itself.

[mirimir]

Can't the government always print ten times as much?

[whatever1]

so the prices of goods/ services will have to adjust accordingly. No issues there.

[AmericanChopper]

I have no idea how this became such a popular misconception. Fractional reserve banking allows banks to use a portion of their deposits to make loans. This doesn’t create money out of thin air. It does affect money supply, but in a completely different way. Because deposits are withdrawn from circulation, and loans allow a percentage of that to be returned to circulation. If a bank folded, it would simply have a list of debtors (loan holders), and creditors (depositors). The value of the liabilities may exceed the value of the assets (in which case it would be insolvent), but no money at all will be withdrawn from existence.