Britain’s new coalition government likes to remind voters we are all in this together. The phrase is rather glib. But in an important sense savers and borrowers around the world are finding the costs of reckless lending are falling on the innocent and guilty alike.
Few people this century will have experienced what it is like to turn up at their bank and be told they cannot withdraw deposited funds because the bank has “suspended” payments.
Suspension sounds harmless. But before the spread of deposit insurance, the word was enough to strike fear into the hearts of depositors, who risked losing much if not all their life savings, and being made to wait months or years for access to what remained.
Between 1930 and 1933, more than 9,000 banks across the United States were “suspended”, accounting for $6.9 billion or 15 percent of all deposits in the country, according to official figures. Behind those numbers are tales of misery for families, farmers and small businesses suddenly left without funds when their bank was suspended or collapsed forever.
So terrible was it, that even the threat of suspension could produce long lines of anxious depositors outside institutions trying to withdraw cash before the tellers closed their windows. In 1907, long lines marshaled by police formed outside the doors of the Knickerbocker Trust Company on New York’s Fifth Avenue as the depositors (“mostly small shopkeepers, mechanics and clerks”) tried to pre-empt suspension.