16 AMERICAN BLUES THEATER Gillian B. White: I forgot how much commentary there is in this movie about the economics of how banks and loans work. I want an audio file of George Bailey saying “The money’s not there!” as he tries to explain how deposits get rolled into other products, not just stacks of bills tucked away in a vault. But I love that speech for another reason, too: it helps explain, at a pretty simple level, how deeply interwoven America’s banking structure and finances can be—so when a bank, big or small, fails, lots of people wind up feeling the impact. As a whole, the movie raises some critical questions about the purpose of banks. What are they meant to do and who are they meant to serve? Bourree Lam: That scene has always really stuck out to me. It’s an important plot point, but I also think it speaks to how much people don’t know about how banks actually work. It’s really not clear to the people of Bedford Falls how credit and loans work, to the point that people cause a bank run and George has to use his own money to stop the institution from dissolving. They really think all their money is sitting there in the safe, but never question how the bank is then able to distribute so much money, such as loans for their homes. GW: Let’s talk about the bank run(s) because that used to be a real thing, when people would rush to pull money out of failing institutions during the Great Depression. To some extent— though less literal now—whenever there’s a big looming financial crisis, there’s fear of a “bank run”, which now looks more like long lines at ATMs as customers try to pull their money out while they still can. The initial run on Bailey Building and Loan is at the beginning of the movie. As you might remember, he uses the money for his honeymoon to keep customers from withdrawing everything. But then the second run, when his uncle misplaces the deposits and the amount is too big for George to cover, hints at a concept that’s still up for discussion today: what it means to be over-leveraged. The fear of too much leverage—that one big loss could take down an entire bank, an entire system, or wipe out the life savings of many—is still a big issue, especially after the Great Recession. It’s why there’s been a big push to make banks hold more cash on hand. BL: I know that there was a bank examiner in the movie, but I guess there weren’t capital requirements in Bedford Falls. It’s also worth adding that bank failures these days are more serious than Depression-era failures since so many banks are national entities. The collapse of Washington Mutual in 2008, triggered by deposit withdrawals, was the largest failure in U.S. banking history. During the first bank run, George was able to convince people not to pull all of their money out and instead take out only what they needed in the short term so the bank could stay afloat. Instead of George Bailey, Americans have the Federal Deposit Insurance Corporation (FDIC), which was created to insure bank deposits precisely so people wouldn’t fear losing everything and pull cash out of the financial system in a panic, triggering bank failures. I actually think the movie does a good job of portraying the downsides of what it means to be both a “good” bank (one that lends to people who need it, but is likely over-leveraged) and a “bad” bank (a more profitable one that loans at high interest rates and only provides credit to people who already have money). But there are also inherent moral judgments about the way a bank should work that come across as too black-and- white. For example, when Potter asks Bailey, “Are you running a business or a charity?” we know it’s not mutually exclusive like that. After all, a bank ideally would help people reach financial goals while also turning a profit. GW: And the relationship between morality and banking comes up really early, right when we see that the newly wedded Baileys THE MORALITY OF BANKING IN “IT’S A WONDERFUL LIFE” More than seventy years after its release, Frank Capra’s “It’s a Wonderful Life” remains a holiday classic, with warm and fuzzy messages about the importance of love and family. But the movie’s plot also touches on some still-relevant financial topics, including the nature of banking, the philosophical calculus behind issuing loans, and the way American families’ financial fates are intertwined. Below is a conversation that two business and economics reporters from The Atlantic—Gillian B. White and Bourree Lam—had after (re-) watching the film about the various questions it raises about mortgages, banking, and financial solvency. Jimmy Stewart (George Bailey), Donna Reed (Mary Bailey), and Thomas Mitchell (Uncle Billy) in “It’s a Wonderful Life” (1946)