How Sheila Bair almost caused a bank run

March 22, 2011, 9:06 PM UTC

When the FDIC chief was 6, she discovered bank vaults aren’t stuffed with cash. Her unpopular conclusion: “There’s no money in the bank!”

Bair recounted the story Tuesday before the annual meeting of the Independent Community Bankers of America. She spent the bulk of the speech defending banking policy, ranging from the unpopular Dodd Frank Act to the long-running consolidation of small banks, before an audience that wasn’t expected to be all that friendly.

Vault verifier

But perhaps in a bid to soften up this tough crowd, she started by recalling her youth in Independence, Kan., where her father regularly deposited the earnings from his medical practice at the local bank.

One Friday afternoon, as we entered the bank, I noticed that the vault door was open a crack. My heart raced. Someone had forgotten to close the door! Now was my chance to sneak a peak at the treasures within. As my father was pre-occupied in conversation with a friend, I slipped away from him and edged furtively to the vault door in rapt anticipation.

But when I reached the vault and peeked expectantly into the small slit of an opening, I had the surprise of my life — no crisp greenbacks, no bags of shiny coins — just rows and rows of little metal drawers with numbers on them. “There’s no money in the bank, there’s no money in the bank” I shouted, racing back to my father to forewarn him that someone had been absconding with his and other bank depositors’ hard-earned cash.

As you might imagine, this created quite a stir among the long line of customers waiting to deposit their week’s earnings. The bank’s president came rushing out of his office to find out what was causing all the commotion. After giving me a few somewhat forceful pats on the head, he assured me that everyone’s money was quite safe. He then invited me and my father into his office for a quick tutorial on reserve banking.

Sadly, Bair doesn’t get into the details of that talk. Maybe next time.

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