Almost no one understands how banks and bank accounts work — and the government isn't helping.
banking industry by causing a massive psychological recalibration of what constitutes a "safe" place to hold money.
That fear wasn't entirely rational. People who understand how both bank balance sheets and the FDIC work knew that at a minimum uninsured depositors would have access on Monday morning to more than enough money to make payroll, and would ultimately lose little if anything. The virality of worries about deposit safety was turbocharged by the fact that it was never particularly rational in the first place to have enormous sums just sitting on deposit at a bank — not when T-bills can yield as much as 5%.
From the point of view of a bank, of course, that kind of outflow is very hard to distinguish from a bank run."Today we are taking decisive actions to protect the U.S. economy by strengthening public confidence in our banking system" said the government'sThere's no magical "public confidence" button Treasury or the Fed can push.
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