A few of my clients this morning are telling me about customers crashing the Countrywide Bank and demanding their money in fear that Countrywide is going under and their money will be lost.    They said they saw it on TV.

Kind of like the scene in "It's a Wonderful Life" where James Stewart tries to convince the patrons of his Savings and Loan to bear with him while Old Man Potter lurks in the dark to seize it.

And just like that classic movie, it's emotional fiction.

Here is why.  Banks work differently.   Your deposits at the bank, no matter what bank, are 100% insured, up to $100,000.  The reason why the FDIC was started was for that reason.  Deposit insurance.  

Before 1934, rumors and panic, like the Countrywide story, used to lead everyone to run to their bank to withdraw their money.   If they heard even the slightest of bad news, they would panic and run over to their bank and pull their life savings out.    Just like the scene in the movie.

This caused many banks to go out of business and created huge losses of savings for many other people.  Often for no valid reason.  The FDIC was then created so that customers' money was insured and there was no reason to panic.

Banks collect money from the public, they protect those funds, they transfer funds for you, and they lend money to collect interest.

The loans made by a bank, like in mortgages, are federally regulated. 

The amount they can lend is controlled by the Federal Reserve Bank.  The amount they can lend is based on the amount of money the bank has at any given time.   

The bank also must keep a percentage of the funds in reserve in case the owners of the funds want them out.

Although the banks love making money from you by charging you for services like checking, savings and each time you go to the ATM, the largest source of income for the bank is returns from investment and securities.

The largest depositors at banks are huge institutions like pension funds, not individuals.  Those deposits dwarf yours.

So, at the end of the day, that guy in the Porsche, who ran over to Countrywide Bank in Calabasas, CA and pulled $500,000 out of his account, did little to damage the actual bank. 

The reporting of that story, and the damage it will create, however, will have a much greater effect.