Finance, Forex and Investments

Will a massive move for taking out money from commercial banks be harmful to the economy?

Let's say that millions of people take out billions of dollars out of commercial banks and put them in credit unions, or but safer investments... What would happen to the economy and those commercial banks in general?

Public Comments

1. It might cause banks to go bankrupt, because they won't have all the actual bills (tangible bills) that they people actually have stored in the bank. For example, if I put 10 dollars in the bank, and then they put 6 dollars into stocks or whatever, then I go back and ask for 8 dollars, they won't have it to give me. Happened in the Great Depression a lot, and made it worse than it was to begin with.
2. Yes, as the commercial banks will have to lower their reserves with the central bank (Federal Reserve Board) thereby lowering the amount they can loan to the public. Remember, if a commercial bank has say $10.00 on deposit with the FRB they can loan out 90.00 additional dollars that doesn't exist (federal reserve credit). Therefore the FRB can not control the money supply through the banks so credit would dry up and it would stop the economy. Credit unions can not operate like a commercial bank with FRB credits. I hope you understand my answer. If not, contact me through the system or read a text on banking and money.
3. in general, in the case of commercial banks, they r unable to generate net interest income from the loans; on the economy side, no lending by banks will damage the economy as lending affects mainly small businesses and consumers; therefore, lending is very important for economic growth but it also should be done in prudent way
4. 1. People don't have have much money in commercial banks. Companies do. They are not going to move their money to credit unions. 2. For individual accounts, there is nothing safer than FDIC insured accounts, unless you are gold bug (and there isn't enough gold around for all the accounts at current gold prices), so there is no reason for individuals to take their money out en masse. 3. Right now, the problem is that the banks have lots of money that they aren't lending. Having people take out the money that isn't being used won't do the economy much damage, though it will cause the banks to lose money. 4. Under normal circumstances, transferring all the deposits from commercial banks to other assets (such as Treasury bills, which corporations can and do buy) would do major damage to the economy because it would force the banks to stop lending. 5. But under what circumstances would any group of people or institutions want to do something like that? Why not ask what would happen if everyone on both coasts suddenly decided to move permanently to the middle of the U.S.? Sure that would devastate the U.S. economy, but why would one even ask?