Loving the Bank Run Scene in It’s a Wonderful Life
By Robert E. Wright
NOTE: This is the original, and much more personally revealing, version of the piece that appeared on 6 December 2018 on Zocalo here http://www.zocalopublicsquare.org/2018/12/06/george-baileys-building-loan-company-can-still-teach-us-banking/ideas/essay/ under the title "What George Bailey's Building and Loan Company Can Still Teach Us About Banking."
The bank run scene in It’s a Wonderful Life always makes me cry the tears of one whose lover may never return from prison, or battle. If you care about America, you should love the scene too, because it is a brilliant piece of cinematic storytelling but more importantly because it encapsulates the promise of the financial system, the reason that policymakers not only tolerate but actively encourage the development of institutions and markets powerful enough to make, or break, the lives of all Americans.
Technically, the scene fulfills all the requirements of brilliance laid out in Robert McKee’s classic Story: Style, Structure, Substance, and the Principles of Screenwriting (1997). It builds tension through a progression of “beats” that constantly defies the viewer’s expectations as protagonist George Bailey battles antagonist Henry F. Potter, first with his words and vision and then with a timely infusion of cash. The protagonist starts the scene in a negative position but ends in a positive one, with the stakes in his struggle with Potter over the fate of Bedford Falls higher than ever, helping the story to arc towards its bell-ringing climax.
The scene begins with George and Mary in the back of a taxicab on a cold, rainy day when the driver informs the newlyweds that a run on the local commercial bank, the only one in town given the policies of the era, appears to be in progress. George immediately hustles to his beloved eponymous Building and Loan, only to find it closed and hence in mortal peril. He lets his distraught depositor-investors in and opens for business. He learns that the bank ordered the immediate repayment of the loan it made to the Building and Loan, thus denuding the mortgage lender of all its cash.
That premise was plausible because financial intermediaries often made short-term loans to each other that stipulated repayment upon demand. The subtext revealed in this and a previous scene is that the Bailey Building and Loan needed to borrow from the bank because some of its own borrowers were in distress and not making payments. Rather than foreclose, evict, and sell, George, like other community bankers with the means, allowed delinquent borrowers time to get back on their feet. The loan did not seem risky to George because at the time he took it out the bank was not yet under Potter’s complete domination.
But then the evil Potter telephones to offer George his backhanded assistance, threatening that if George doesn’t sell out to him on the cheap like the bank just did, he’ll have to dispatch the police to prevent the “mob” from doing bodily harm to George and his relatives/employees after the Building and Loan goes bankrupt before the official close of business at six that evening.
George hangs up and attempts to talk his way out of the jam but wailing sirens immediately trounce his attempt to calm the fears of his customers by asserting that the economic crisis, one of the several waves of bank failures that swept the nation during the Great Depression, “isn’t as black as it appears.”
When Tom demands repayment of the $242 he invested in the institution, George correctly explains to him that building and loans are not commercial banks and that Tom owns time deposit-like shares in the institution payable in sixty days, not a checking deposit payable on demand. Despite George’s heartfelt, and accurate, reminder that the Building and Loan’s assets consist of long-term loans to his neighbors, Tom insists, implying that something must be wrong if the institution cannot pay out a mere $242.
Randall then enters and tells the crowd that they can sell their shares in the Building and Loan to Potter for fifty cents on the dollar, cash. Tom immediately threatens to sell his shares to Potter because “it’s better to get half than nothing.” As the crowd starts to head for the door, George vaults the counter and blocks their path while plausibly explaining that if enough of the Building and Loan’s investors sell out, Potter will gain control of the institution and monopolize the town’s financial system and housing market, which will allow him to raise borrowing costs and rents to oppressive levels.
An intimate knowledge of his investors and borrowers, the telltale attributes of a good community banker, enables George to draw out the implications of Potter’s control in personal, detailed terms, which stops the crowd long enough for him to expose Potter’s intent: the old codger is buying shares, not selling them, because he is using the financial crisis to get rich at the expense of the poorer and presumably less astute and informed townsfolk.
The crowd seems to agree with George’s assessment, which triggers Americans’ long-standing hatred of monopolists, but the atmosphere remains thick with panic because everybody needs cash to feed their kids, pay medical bills, and hold them over until a family member can find employment once again. That’s when Mary steps up with $2,000 in honeymoon money that George begins to lend out, starting with $242 for the recalcitrant Tom. The next two customers, however, request only $20 each and George foreshadows the end of the run when he kisses Mrs. Davis for seeking only $17.50.
The scene ends with the Building and Loan with just $2 left at the close of the business day, the employees drinking and joking that they hope the two bills will make love and reproduce like rabbits in the safe that night. Unstated is the fact that if the Federal Reserve System (“the Fed”) had been doing its job, it would have lent funds to the local commercial bank (or its correspondent bank in Manhattan), which then could have remained independent of Potter and would have had no reason to demand immediate payment of its callable loan to George’s institution.
Then, as now, one of the Federal Reserve’s major functions was to act as a lender of last resort, to make emergency loans to troubled but solvent banks during crises. It failed to do so during the Great Depression, greatly exacerbating the misery. Since then, the federal government and its central bank have gone too far in the other direction on several occasions, bailing out bankrupt institutions that took on too much risk and should have been liquidated in an orderly fashion instead. Worst of all, its policies, most notoriously Too Big to Fail doctrine but numerous others as well, have actually increased the likelihood of financial crisis.
As McKee shows, many other scenes in cinematic history are technically perfect but few of them, even those designed to elicit powerful emotions, make me cry more than once, let alone every dang time. My emotions arise not so much from lusting after Donna Reed or even the film’s hoary, classic arch plot of “good versus evil” as they do from the details of the struggle, which poignantly illustrate a point that I have been trying to establish since my pitiable career began a quarter century ago: To remain prosperous, America needs a robust, innovative financial system, but its policymakers need to ensure that Americans do not have to rely on a lucky good guy (George or the Federal Reserve) to thwart the numerous bad guys who happily hurt others (cause a financial crisis) in order to “make a bar” (Wall Street slang for a million dollars). Crises ultimately stem from the structure of incentives, institutional and individual, and hence that is where regulators should concentrate their efforts.
That seems like an easy point to establish but it is not when almost everybody, Left and Right, approaches financial system regulation with more ideological baggage than they could check gratis on a Southwest flight. A cacophony of “isms” that block clear thinking and stymie learned judgement reduces incentive structures to “greed,” with the Left clamoring for less and the Right for more. But the devil lurks in the details, in precisely what people are rewarded for doing, and not so much in the amount they will be paid for doing so.
In an age, however, when “capitalism” contends with “capitalisn’t” in sound bites and tweets, many swapped by people who cannot clearly differentiate supply from demand or micro from macro, making good sense just is not good enough. So I labor and blubber on, hoping not to end up some snowy night on a bridge over an icy river next to some modern day community banker, knowing full well that, despite our best efforts, America has become Pottersville.