The incoming Trump administration has reportedly started looking into ways to drastically shrink, consolidate or even eliminate the top bank regulators in Washington. This is not smart economics. The FDIC – the Federal Deposit Insurance Company – was created in 1934 during the Great Depression after thousands of banks began to fail. Those who didn’t lose their money right away, panicked and withdrew their deposits – causing what’s known as a ‘bank run’ (famously depicted in Capra’s ‘It’s A Wonderful Life’), causing yet more banks to close. The agency was created to restore and maintain the public’s confidence in the financial system…and it did. At the end of 1934, only 9 banks had failed compared to the more than 9,000 in the previous four years. Since its creation, no American banking consumer has lost money that was in an FDIC insured account, even when a bank fails. It also keeps an eye on financial institutions to make sure everything is operating soundly and consumers remain protected.
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