As Adam mentioned it's impossible to predict the future, but there are signs that more banks are in danger of failing. That was the word from Sheila Bair, the chairwoman of Federal Deposit Insurance Corporation, or FDIC, this week. Bair was in San Francisco yesterday to assure consumers that even if their banks fail, their money will be protected. That's just part of what the FDIC does. For more on their role in the U.S. economy, here's NPR's Alix Spiegel.

ALIX SPIEGEL : Chris Etzler (ph) got the call about 45 minutes before his daughter's graduation. It was a Friday in May, around six pm when Etzler, who is mayor of Staples, Minnesota, population 3,000 was told that the FDIC had staged a surprise takeover of the town bank. Would he please come down and meet with them?

Mr. CHRIS ETZLER (Mayor, Staples, Minnesota): I mean, my first reaction is, you know, it's my daughter's graduation and - but you know you are being asked by, you know, the Federal Government, to show up at the bank and - so, I made my way over there.

SPIEGEL: There he found a scene unlike any other he had ever encountered in his small railroad community.

Mr. ETZLER: All these suits, you know, there were more suits in town on that day then, you know, then we see in a long time around here. So, a lot of suits, and it was kind of a - seemed to be kind of chaos inside the building at that time.

SPIEGEL: FDIC employees ushered him into a conference room past men and women who were literally opening roles of coins to count every penny. They sat him down and explained that that bank, First Integrity, had failed. That FDIC employees would spend the night taking a count of all of its assets, but by morning the bank would be reopened. The FDIC had found a new company to run it. Etzler says he was surprised. He had no idea that this was coming. No one did. Not the bank employees. Not the townspeople. The FDIC had been completely clandestine about the whole thing.

Mr. ETZLER: They set up shop over in another community 30 miles from here and, you know, went under, you know, false names, and they scouted out where to park cars and everything in town so that they wouldn't come in with 30 vehicles.

SPIEGEL: Why? The FDIC wanted to avoid a run on the bank. In fact, while they are occasionally forced to negotiate the takeover of failed banks like First Integrity. Avoiding bank runs is really the central function of the FDIC. So what is the Federal Deposit Insurance Corporation? Where did it come from? And what does it do? Geoffrey Miller, a professor of banking law at New York University explains that the FDIC was born out of the trauma of the Great Depression.

Professor GEOFFREY MILLER (Banking Law, New York University): After 1933 when essentially all banks in the United States failed, Congress responded with a fundamental statute which, among other things, established deposit insurance as a basic policy of federal banking regulations.

SPIEGEL: Miller says that this creation of deposit insurance, the guarantee that customers would be paid up to 100,000 dollars of their deposits, even if their banks fail has fundamentally altered the psychology of the consumer.

Prof. MILLER: So individuals with money in banks, even if they see on the news that Citibank has had record loses or JPMorgan Chase has problems, they don't need to worry. Their deposits will be protected. And that's had an important impact. It's been extremely effective at preventing massive bank panics of the type that happened in the depression.

SPIEGEL: In fact, half a century past without a banking crisis after the FDIC was created. It wasn't until the savings and loan episode in the 1980s that a large number of banks failed, literally hundreds. In the current environment only five banks have collapsed, but says Miller, it's difficult to predict what will happen.

Prof. MILLER: Somebody once said that if you seen one banking crisis, you've seen one banking crisis. Which means that they're all different. We're in a brave new world here and we've got to face conditions that we've never seen before.

SPIEGEL: The FDIC certainly seems to be preparing for whatever may come. In late February, it placed a large number of job postings in newspapers. The FDIC said it was looking for people with quote "skill in performing duties associated with financial institution closing." Alix Spiegel, NPR News, Washington.

COHEN: Next we take your questions about money when Day to Day continues.

Copyright © 2008 NPR. All rights reserved. Visit our website terms of use and permissions pages at for further information.

NPR transcripts are created on a rush deadline by a contractor for NPR, and accuracy and availability may vary. This text may not be in its final form and may be updated or revised in the future. Please be aware that the authoritative record of NPR’s programming is the audio.



Please keep your community civil. All comments must follow the Community rules and terms of use, and will be moderated prior to posting. NPR reserves the right to use the comments we receive, in whole or in part, and to use the commenter's name and location, in any medium. See also the Terms of Use, Privacy Policy and Community FAQ.

NPR thanks our sponsors

Become an NPR sponsor

Support comes from