A bank’s depositors benefit from having bank accounts that allow them to easily make payments to others and to maintain a balance of money in a safe and liquid form. A healthy banking sector is central to a healthy economy. The nature of banking, however, along with the interconnectedness of the financial system, can pose vulnerabilities.
Even if a bank is fundamentally sound, it can suddenly be threatened with failure if its customers lose confidence and withdraw deposits. 3 This inherent vulnerability can pose risks to the entire economy. In the 19th and early 20th centuries, before the creation of the Federal Reserve and the Federal Deposit Insurance Corporation (FDIC), banking panics were frequent and costly to the economy.