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.
