Many people are concerned that, despite FDIC insurance, their bank deposits are not really safe. What if, in a bank panic, everyone decided to take out their deposits at once? Would the banks refund the money? Does the FDIC have enough to cover all deposits, or would the Federal Government have to print more money, thus causing hyper-inflation?

Answer

There is $7 trillion currently deposited in banks, and the FDIC reserve fund is only 1.5% of that total, or $105 billion. So, if everyone did go to the banks on the same day to withdraw funds and demand cash, the banks would have to close until the U.S. Treasury printed enough cash to fulfill demand. Would this cause hyperinflation? No, because the $7 trillion in deposits are currently being used by banks for lending. It is already in circulation as part of the money supply. Instead, it would cause a recession, since the banks would no longer have funds to lend. In fact, this slowdown in lending is what has caused the current recession. (Source: FDIC, Summary of Deposits)

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