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Banks are a special case when it comes to regulation. On one participation, they are private businesses just like phony manufacturers and steel companies. But they also play a central role in the brevity and therefore affect the well-being of everybody, not just their own consumers. Since the 1930s, Americans have devised regulations designed to recognize the unique viewpoint banks hold.

One of the most important of these regulations is deposit insurance. During the Great Depression, America’s economic decline was seriously aggravated when vast numbers of depositors, concerned that the banks where they had deposited their savings would fail, sought to withdraw their funds all at the same time. In the resulting "runs" on banks , depositors repeatedly lined up on the streets in a panicky attempt to get their paper money. Many banks , including ones that were operated prudently, collapsed because they could not transmute all their assets to cash quickly enough to satisfy depositors. As a result, the supply of funds banks could lend to business and industrial adventure shrank, contributing to the economy’s decline.

Deposit insurance was designed to prevent such runs on banks . The government said it would stand behind deposits up to a certain level — $100,000 currently. Now, if a bank appears to be in financial vexation, depositors no longer have to worry. The government’s bank-insurance agency, known as the Federal Deposit Insurance Corporation, pays off the depositors, using funds collected as insurance premiums from the banks themselves. If necessary, the government also compel use general tax revenues to protect depositors from losses. To shield the government from undue financial chance, regulators supervise banks and order corrective demeanour if the banks are found to be taking undue risks.

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