So most people would get their money back, eventually. The FDIC insures deposits up to $250,000 per account, and they made the dangerous precedent of securing beyond that in a failed bank recently. The reason they did this is the disruption the collapse of a bank will have in the economy.

In today’s world, companies don’t have a safe onsite with 2 weeks of payroll - we consider the banking institutions secure and further, we leave accounts in the bank for even that little bit of interest. I’m a small business owner, and my payroll is left in my revolving business account, where I remove excess income to my personal accounts (again in the bank), and I have little cash on hand. Intuit pulls the payroll every 2 weeks and drops it in… the employee bank account. The only time physical money is held is when one of us pulls out cash for some reason.

So if my bank collapses, the FDIC will pay me back, but it will take a few weeks. The money I had sitting for payroll is lost until then. The personal money I had past that is likely in the same bank and tied up as well. I will have more money coming in from revolving income… except some of those customers might use the same bank, so they “have” the money to pay me, but can’t access it. So I can’t pay my employees, or my phone company, or credit cards… until everything is fixed. I’m a small employer, so imagine a $50 million company suddenly unable to pay out anything. The economy breaks down because we trusted the bank to hold all the money - and the bank collapsed.

It can be said that banks realize they are “too big to fail” and act recklessly investing, knowing they will have to be supported if their investments fail. I support a more seamless collapse process for large banks, so disruptions are smaller and society can function smoothly as they go under. Without that threat, they have no incentive to reign in.