I ask because since our money is backed in value (a precious resource like gold and oil) and doesn’t leave the country, doesn’t it also mean that our wealth remains intact as a nation regardless of whether or not the bank has it? (Ie, us citizens have it, so it doesn’t matter if it’s in a bank or not- the wealth is held by a U.S. citizen).
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It does, because banks run fractional reserves. They don’t actually have everyone’s money. So if this happened, the bank would fail. The good news is, your deposits are insured by the government (in some countries), so you’d be reimbursed. The bad news is that’s potentially a huge amount of money the government has to pay out, and where is that money going to come from? Taxation, borrowing, cuts to public spending, or money printing. They’re all bad options, and all have a negative economic impact.
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