To bank, or not to bank

On the front page of The Fresno Bee last Tuesday, located above the fold, was a headline that read: Fresno banks shunned. According to the article, written by Tim Sheehan, roughly “50,000 Fresno residents keep their money not in bank accounts, but in wallets, envelopes, and even under the proverbial mattress.â€Â That’s 11 percent of the city’s population, nearly double the national average.

What does that say about us Fresnans? Are we backward paranoid people unwilling to place our trust in the country̢۪s financial institutions?

The first thing that must be said is that while 50,000 is a big chunk of people, the vast majority of us keep our money in banks. Indeed this is a safe bet, with the Federal Deposit Insurance Corporation (FDIC) insuring $250,000 of each bank deposit. What that means is that even if there is a run on your bank and it fails, the Full Faith and Credit Clause of the federal government protects the first $250,000 of your deposit.

But, then, why do so many choose to not place their money in banks? The Bee gives two main reasons: location and lack of knowledge. According to the article, 48 banks are located in the three wealthiest Fresno and Clovis ZIP codes while only 13 are in the five poorest. This means that the bulk of those not using banks are most likely unable to reach one on a regular basis or with relative ease. Also noted in the article, those new to the community have an inherent mistrust in banks due to past experiences in other countries. Both of these contribute mightily to the high number of Fresnans without bank accounts.

So that explains it right? That̢۪s the end of the story. Time to get on with our lives and not question this arrangement.

But as Lee Corso of ESPN̢۪s College Gameday would say, not so fast my friend.

Does it make sense that if a bank fails the government will come to the rescue with $250,000 for each and every person with money in that bank? Where does the government get this money? Why should we place our trust in a bank without considering that institution̢۪s integrity?

Answers: no, they print it, and we shouldn̢۪t.

As I̢۪ve said before, the United States government is more than $11 trillion in debt. If a bank failed, our government would have no choice but to print more money in order to make good on their commitments. When there is more of something its value goes down. And when the value of money goes down, the result is inflation.

But how do banks fail? They engage in a practice called “fractional reserveâ€Â banking in which they only keep on hand a fraction of member deposits and lend out the rest in an attempt to make money.

In any other type of business we would decry this as a greedy and unsound practice. But since this is banking, we let it slide.

Undoubtedly, few of these thoughts cross the minds of those considering whether or not to put their money in the bank. But they should. Next time you go to put money into your bank, ask yourself this question: is this bank sound? If it̢۪s not, it may be time to ask grandma about the finer points of hiding your money under a mattress.