Bank Bail Out or Deposit Accounts Rescue?

For the Federal Government to guarantee all bank deposits does not amount to bank bailouts. It protects those who have claims on (U.S.) money dollars, but it does not protect bank shareholders. It simply makes an implicit guarantee explicitly.

In what people call a bank “bailout,” shareholders are not made whole. With a business bailout, the shareholders are made whole. A Government guarantee of deposit liabilities protects the depositors, not the shareholders.

Let’s Examine The “Bailout”

To understand why guaranteeing bank deposits does not amount to “bank bailouts,” you need to do a small amount of personal research. Take out a dollar bill (or any other denomination).

Notice that your bill says “Federal Reserve Note.” In addition, it has “United States of America” emblazoned on it. Then, somewhere near the lower left, it has the statement “good for the payment of all debts, public or private.” If you ask to withdraw all of the “money” in your account, you will receive bills just like this one.

So, what does all this really mean?

What you have, then, consists of a promise by the Federal Government to give the same promise to whomever you give any of your dollars. It is a promise to give a promise. That sounds a little silly when stated that way, but it works as long as people willingly accept those promises.

What then did you receive when your bank gave you a promise to give you bills that represented the government’s promise? Was this not an indirect promise from the Federal Government?

Thus, for the Federal Government to make its existing promise explicit does not really change anything and does not cost taxpayers any more than it already does. Such a move would give holders of deposit liability accounts confidence that their claims remain valid.


Does the banking crisis consist of another case of the government creating a crisis to support its political power? Remember, “Never let a crisis go to waste.”

The banking system needs a complete overhaul, but within the existing system, Congress could resolve this “crisis” in a matter of minutes by making their implicit guarantee explicit and guaranteeing all bank deposits.

One thought on “Bank Bail Out or Deposit Accounts Rescue?

  1. Perhaps what the media call “bank bailout” is more clearly stated ” bailout of banking customers?”

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