Crashes and the rules they brought · 1929–1950s
1933
Deposit insurance
The Banking Act of 1933 creates the FDIC to guarantee small deposits.
The Banking Act of 1933, often called Glass-Steagall, created the Federal Deposit Insurance Corporation and separated commercial from investment banking. From 1934, deposits were insured up to $2,500.
💡 Why it made sense then
If depositors know they'll be repaid, they have no reason to run. Critics warned that insured banks might take more risk.
🎮 In Journey Shares
Savings at the game's bank are insured up to $25,000.
Ideas it gave us
- 🏦 Deposit insurance
Deposit insurance guarantees that savers get their money back, up to a limit, if their bank fails. In the US the FDIC insures up to $250,000 per depositor, per bank.
- 🏦 Bank run
A bank run happens when many depositors withdraw their money at once because they fear the bank will fail, which can make it fail even if it was sound.
- 🏦 Moral hazard
Moral hazard is the tendency to take more risk when someone else bears the cost if things go wrong, such as a bank expecting a bailout or a driver who is fully insured.
Practise with $10,000 in play money
Free. No real money involved.