There's a key scene in the Christmas classic "It's a Wonderful Life" that you might need to explain to younger viewers. Small-town banker George Bailey, played by ineffable everyman Jimmy Stewart, is facing a lobby full of angry customers who think the business might fail and are demanding to withdraw all their savings. But the bank doesn't have enough cash on hand — in fact, it never does, because it's already loaned it to other customers.
“You’re thinking of this place all wrong, as if I had the money back in the safe,” Bailey tells a restive crowd making a run on his bank. “The money’s not here. Why your money is in Joe’s house, that’s right next to yours. And in the Kennedy house. And Mrs. Macklin’s house and a hundred others. You’re lending them the money to build and then they’re going to pay you back as best they can. Now what are you going to do, foreclose on them?”
According to a recent Wall Street Journal article, Trump advisers and officials with the so-called Department of Government Efficiency tasked with reducing federal spending have talked about eliminating the Federal Deposit Insurance Corp.
For audiences watching the 1946 Frank Capra movie, a bank run would have been a familiar scene. But in the decades since then, they've become a rarity, thanks to a government agency that some Trump advisers reportedly want to dismantle.
According to a recent Wall Street Journal article, Trump advisers and officials with the so-called Department of Government Efficiency tasked with reducing federal spending have talked about eliminating the Federal Deposit Insurance Corp. (FDIC) or transferring its duties to the Department of the Treasury. This is highly unusual because, as the Journal notes, FDIC deposit insurance is "considered near sacred" and any move that threatened it would undermine trust in the banking system.
The logic of this is hard to understand, even by Trump standards. The people behind DOGE — billionaire Tesla owner Elon Musk and failed presidential candidate Vivek Ramaswamy — seem to have a built-in skepticism toward independent agencies, as I’ve noted before, but the FDIC isn’t some heavy-handed regulator telling banks what they can and can’t do. It’s a simple insurance plan: Banks pay dues, and customers are reimbursed if something happens to the bank, up to $250,000.
It can be hard to understand how much of a difference this makes. Even into his nineties, my grandfather, who grew up during the Great Depression, lived in so much fear of bank runs that he kept small savings accounts and safe deposit boxes with rare coins in different banks all over his hometown. My mom spent months after he died tracking down and closing all those long-forgotten accounts.
Banks may not like paying the dues, but they get a lot of value from putting that gold FDIC sticker on their doors to reassure potential customers their money is safe.
It’s possible that this is just another goofy idea that won’t amount to much being floated by Musk and Ramaswamy, who previously have suggested cutting an improbable $2 trillion in federal spending or maybe firing every other federal worker randomly. It might be just a feint to make other ideas, like getting rid of the Consumer Financial Protection Bureau, seem reasonable. It may be tied to some Silicon Valley crackpottery about replacing the dollar with Hawk Tuah memecoins and Bored Ape NFTs. Or it could be a plot to push nervous small bank customers to move their money to bigger banks. In the Trump era, any of those explanations is plausible.
Whatever the reason, eliminating the FDIC is, to use a technical term, bonkers. Even transferring it to the Treasury Department creates a risk that it could become politicized as some future secretary picks and chooses which banks or customers to save or tries to extend FDIC protections to risky fintech schemes.
In "It's a Wonderful Life," George Bailey gets a chance to see the world in which he was never born, thanks to an intervention from a kindly angel. His brother died in an accident he could have stopped, his uncle is in an institution and his wife never married. Instead of a thriving middle-class town, his hometown is under the control of George’s rival, the town’s wealthy banker. Few people own homes, and everyone is more financially stressed.
It’s not a bad vision of the world in which the FDIC had never been born either. Hopefully it won’t take intervention from an angel to make Republicans in Congress realize what a mistake that would be.