Bank Failure: As American As Apple Pie? In a recent op-ed for the Los Angeles Times, historian Jane Kamensky describes America's roller-coaster relationship with banking. In "Boom and Bust: It's The American Way," she writes that the "rapid oscillation between confidence and panic in the banking sector is nearly as old as the United States."
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Bank Failure: As American As Apple Pie?

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Bank Failure: As American As Apple Pie?

Bank Failure: As American As Apple Pie?

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[POST-BROADCAST CORRECTION: In this interview, we incorrectly suggested that the FDIC (Federal Deposit Insurance Corporation) insures deposits in credit unions. Credit unions are covered by a separate federal agency - the National Credit Union Administration.]


Americans share one cultural touchstone on the subject of bank panics.

(Soundbite of movie "It's a Wonderful Life")

Mr. FRANK FAYLEN: (As Ernie Bishop) Don't look now, but there's something funny going on over there at the bank, George. I've never really seen one, but that's got all the earmarks to be in a run.

CONAN: That run on the Bailey Building and Loan happened in the movie "It's A Wonderful Life," of course. And George Bailey played by Jimmy Stewart calmed his depositors of Bedford Falls.

(Soundbite of movie "It's a Wonderful Life")

Mr. JIMMY STEWART: (As George Bailey) You're thinking of this place all wrong. As if I had the money back in a safe. The money is not here. Well, your money is in Joe's house that's right next to yours and on the Kennedy house and Mrs. Macklin's house, and a hundred others. Why, you're lending them the money to build, and then, they're going to pay it back to you as best as they can. Now, what are you going to do? Foreclose on them?

CONAN: Fast forward and earlier this month California-based IndyMac became the largest bank to fail in two decades after a run depleted its deposits. The bank had lost more than 700 million dollars in the final two quarters of last year. As rumors became reality panicked, angry, and worried customers formed long lines around IndyMac Banks to withdraw their funds. And George Bailey's honeymoon fund was not available this time around.

In Sunday's Los Angeles Times, historian Jane Kamensky wrote an op-ed called "Boom and Bust: It's The American Way" where she describes the cycles of absolute trust in banks and occasional moments of total panic. If you've ever been in a bank run on either side of the teller's window, what was it like? Tell us your story, 800-989-8255. Email us, You can also join the conversation on our blog at Jane Kamensky is chair of the history department of Brandeis University, author of ''The Exchange Artist: A Tale of High-Flying Speculation and America's First Banking Collapse.'' She joins us from member station WBUR in Boston, Massachusetts. Nice to have you in the program today.

Dr. JANE KAMENSKY (Chair, History Department, Brandeis University): Thanks for having me, Neal.

CONAN: And you open your op-ed with a phone call from your mother-in-law?

Dr. KAMENSKY: My mother-in-law really is a little old lady from Pasadena and she called my husband earlier this month to ask whether she should pull some money out of IndyMac. And, he explained that the FDIC was behind the bank, but a bank that big would probably not fail. Everything should stay calm and of course he, like many other IndyMac customers, found that their confidence was misplaced, earlier last week when the bank was taken over by the FDIC and the runs kept happening.

CONAN: The FDIC, the Federal Deposit Insurance Corporation. And if you've got a hundred thousand dollars or less in your bank account, you're covered.

Dr. KAMENSKY: And if you have more than 100,000 dollars in your bank account, you're not in as good shape. In this case, the FDIC, through the new IndyMac Federal, will pay out a guaranteed 50 percent of the money over 100,000. The rest to be negotiated with the eventual liquidation of the assets of the bank, but it's going to take a while and there will have to be some luck involved for people to get more than that out.

CONAN: And even those who are totally covered it was not like they could, well, use their debit card anymore.

Dr. KAMENSKY: No. And I think that's the disturbing characteristic of a bank run for depositors, is, we all buy the fiction that has George Bailey said in "It's a Wonderful Life." The money is right there back in the safe that the debit cards we hold, or in the old days, the promissory notes that said they were convertible for hard currency could be redeemed and in instant and the money was sitting there waiting for us. Of course, the bank can't operate that way. If it doesn't loan out some of what it takes in deposit, it can't make the money to pay its investors a return. So in a way, banking is always a species of theater that makes us believe that what's going on behind the curtain is solid and transparent, but that requires a degree of controlled risk-taking. Sometimes that risk-taking gets out of control.

CONAN: We're talking with historian Jane Kamensky. If you'd like to join the conversation on bank runs, give us a call, 800-989-8255. Email is Marie is on the line, Marie from Denver, Colorado.

MARIE (Caller): Hi.

CONAN: Hi there.

MARIE: Actually, I don't know how many people remember the 1982 collapse of Penn Square Bank in Oklahoma City. But, my parents and I all had our accounts there and woke up one morning to hear that it was being taken over by the FDIC, and we all went down to get our money and stood in line for two to three days.

CONAN: For two or three days?

MARIE: Yeah.

Dr. KAMENSKY: And did you get it out, Marie?

MARIE: We did because we had it broken up in separate accounts less than 100,000 but what was so funny, I mean, it was kind of a weird atmosphere because people were worried of course but at the same time, there were other banks out there passing out cards, passing out water and you know, hi, get your money and bring it to us, we'll protect you.

(Soundbite of laughter)

MARIE: So, it got funny after a while. But yes, because as the bank had been taken over by the FDIC, it did take a quite while to get everybody's accounts out.

CONAN: Marie, I'm glad you and your parents managed to survive, of course 26 years later. It might not have been so funny then.

Dr. KAMENSKY: A couple of things about Marie's experience that are somewhat typical is the idea that you wake up in the morning and it's gone. So, that confidence isn't something that you realize you're placing and when it evaporates, it's gone in an instant. It reminds me of that old Gary Larson cartoon where the cows look up and say oh dear, this is grass. We've been eating grass. So it's gone in an instant. There's a collective response that, if it leaks from bank to bank, can become not just a bank run but a panic. And then Marie opened her comment by saying, I don't know if you remember, and most of us won't because the process of forgetting takes over almost immediately. Banks have failed at least every generation for 200 years. Hundreds of banks, over 700 banks failed in the S&L crisis between 1986 and 1991. And yet it is shocking to us to see this central casting bank run played out on the television and front pages of the newspaper around the world. Our confidence recovers. We place it merrily again and then like Claude Rains in "Casablanca," we're shocked, shocked to find ourselves back in that same long line.

CONAN: Marie, thanks very much for the phone call. I appreciate it.

MARIE: Sure.

CONAN: And you mentioned the psychology. For a long time, banks, the architecture of banks was derived from the castle. These were protected things. You had to cross a moat, practically, to get into the bank.

Dr. KAMENSKY: Something to the castle and something to the chapel as well, I think, to sort of sanctify and ennoble the process of giving and taking credit which, you know, into the early modern period, had been something that stock jobbers did in alleys and not at all considered a dignified process. The book I wrote about the first American banking process, the exchange artist details the creation of the Detroit Bank in the early part of the 1800s. And with nothing to - no real assets to put in the bank, the Boston founders of this bank dragged overland for over 1,000 miles, iron bar doors, elaborate Windsor-style chairs and furnishings.

The thing looked like a bank and that was very important to the theater of banking. If you look even today, if you visit the Treasury Department in Washington, D.C., they can show you the cash room that was there while our currency was redeemable for gold. And there's enough marble in that castle - in that cash room to cover the Vatican. There wasn't enough gold in the bank -gold in the back to pay everybody who came in and asks to redeem their bills, but when you came in, you thought that you were in a sanctified space. And that was important to making banking a legitimate activity, to domesticating risk, to making risk part of a bureaucracy, something that was modulated and plausible on day-to-day basis.

CONAN: Let's get Daniel on the line. Daniel is calling us here from Boston, Massachusetts.

DANIEL (Caller): Hi there. How are you?

CONAN: I'm well. Thanks.

DANIEL: Good. So you know, I actually had a similar situation. I was ten and living overseas in Central America in the canal zone when the only bank in town, the only American bank in town failed. I remember being a kid and thinking you know, not really understanding this at all. But I also wonder, you know, whether or not we've got ourselves into this problem even more so the fact that - I remember my parents after this experience, taking money out for the week, having cash on hand and whether in this world of ATM withdrawals and debit transactions, we sort of are primed for our own emergency.

CONAN: What do you think, Jane?

Dr. KAMENSKY: Well, I think that the good old days when we were thrifty and sensible are greatly exaggerated. I think in most respects, we're in a lot better shape in our financial culture than we were in the pre-FDIC regime, before 1933 or before the Federal Reserve System and its modern incarnation was set up. I guess, Daniel as an individual, as I can see, that were in perhaps less tangible communication with our money on a day-to-day basis.

CONAN: Our mattresses are thinner, yes.

Dr. KAMENSKY: Our mattresses are thinner and the plastic holding parts of our wallets may be thicker, but anybody who doubts that a regulatory regime can work or anybody who thinks that a free market system unchecked can take care of our financial sector, should look at the early 19th century compared to the post-Great Depression 20th.

DANIEL: My parents were actually raised in the Depression. I think that changed their attitude and this experience sort of harkened back to that for them. That first of all, money wasn't available. You know, the fact that they couldn't have, that was their own, was I think, a great - made a change in their own financial planning.

Dr. KAMENSKY: And certainly there have been parts of the early years of this current century that have felt like the bubble of the 1920s as well.

CONAN: Daniel, thanks very much for the call.

DANIEL: Thank you.

CONAN: We're talking about bank runs with historian Jane Kamensky. She's with us from our member station WBUR in Boston. Her book is called the "The Exchange Artist: A Tale of High-Flying Speculation and America's First Banking Collapse." And you're listening to Talk of the Nation from NPR News. And Jane, you talked about the theater of banking. You write about Andrew Dexter, Jr. in this first collapse but he and people like Charles Ponzi - the difference between theater and con game is very subtle.

Dr. KAMENSKY: Yeah. I think in general, the difference between the kind of noble speculation that built the country and the ignoble speculations that built the country can be subtle. I guess I'd fight for the difference between Dexter and Ponzi, though. I think Dexter, like a lot of early speculators, was fundamentally a pretty public spirited individual. I write in my book and I wrote in that op-ed about the object of his paper pyramid, which was to build a tall building in Boston that would be an ennobling public space for commerce.

It didn't have his name on it. It wasn't Dexter Tower. It wasn't a mansion in the Caribbean. I think he really wanted to do well by doing good, as the old Tom Lehrer song said. Ponzi was a criminal. Ponzi came to the United States famously with a couple of dollars in his pocket, came through Boston, went to Montreal where he got involved in some sort of small time hustling, including check forgery .So he had served time in Canada before he came back to Boston and started his big paper pyramid scheme. And unlike Dexter, Ponzi's had nothing at the base of it. It was just a pure build and run scheme that didn't wind up with him running fast enough or far enough.

CONAN: Yeah. But he built quite a big pyramid before it all fell down.

Dr. KAMENSKY: Yeah. And he built it fast and I think that's the dynamic of confidence coalescing and then coming apart very quickly. It's a very, very fickle substance. In the 19th century, they talked about the easy consoling train of thought that took you from a piece of paper with funny drawings on it to the imagination that there was gold or something else of real value at the end of it. And I guess, you know, in our day as Daniel was suggesting earlier, that train's gotten even longer, you know, from pixels to plastic to paper to the idea that there's value somewhere.

CONAN: Let's get Jessica on the line. Jessica with us from Salt Lake City in Utah.

JESSICA (Caller): Yes, I have most my money in credit unions and do credit unions run the same as banks? Or can there be a run on a credit union like a bank or how does that work?

Dr. KAMENSKY: If a credit union is FDIC-insured, it has the same protection as any bank. There can be a run on anything. The collapse of Bear Stearns in March of this year, though, Bears is not in any classical sense a deposit-holding bank.

CONAN: Investment bank. Yeah.

Dr. KAMENSKY: An investment bank. But with no individuals who would be able to run. A run simply means that people want their money out at once. The run on IndyMac last week where we saw the lines snaking around the branches. In fact, that wasn't what broke them. That was a sort of ex post facto phenomenon. The real run was mostly online and over the phone as people pulled their money out. So you can run on anything that's holding capital.

CONAN: So, Jessica, you should check to make sure to make that your credit union is protected by the FDIC.

JESSICA: I will.

CONAN: OK. Thanks very much.

JESSICA. Can I ask another question?

CONAN: Sure.

JESSICA: Are credit unions safer in that they're more, the people's money more rather than investors like in a bank?

Dr. KAMENSKY: You know, I think for the most part, banks are safe. The 100,000 dollar per deposit limit that the FDIC set is for most of us an extremely generous limit. And what the FDIC has created in 1933 after the failure of more than 4,000 banks in the first month of that year alone. And between about 1935 when the FDIC regime starts working and the mid-1970s, it creates a stable banking system. There are no major failures. It helps with other arms of the government work us through the S&L crisis. People shouldn't panic. We're all better off even in situations where a bank is unstable, we're all better off taking a pause. So, Jessica, I don't know the circumstances of your particular savings and loan, but in general, banks are safe and when they overextend themselves, we now have public mechanisms that help them correct themselves.

CONAN: Thanks, Jessica.

JESSICA: Thank you.

CONAN: Bye-bye. And nevertheless, your book reminds us the cycles may be less violent that they used to be nevertheless, banks sometimes fail.

Dr. KAMENSKY: Indeed. Banks often fail. Between 1865 and the beginning of the bubble in 1921, there is no year that a bank doesn't fail. But across the population, those failures are better and better contained than they used to be, which is not to say that there haven't been and won't continue to be a lot of very painful individual stories as people work their way through the losses of current weeks and years.

CONAN: Jane Kamensky, thanks very much for your time.

Dr. KAMENSKY: Thanks, Neal.

CONAN: Jane Kamensky, chair of the history department of Brandeis, author of "The Exchange Artist: A Tale of High-Flying Speculation and America's First Banking Collapse." She joins us today from member station WBUR in Boston. Tomorrow, Ken Rudin joins us, the political junkie at the Newseum. You join us, too. I'm Neal Conan. It's the Talk of the Nation from NPR News.

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