this post was submitted on 14 Aug 2024
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Same thing as if everyone stopped paying any type of loans. A shock to the banking system, potentially a collapse if the debt in question is a significant percentage of all debt. Many people would lose their savings.
And no don't hope that bank owners would absorb the debt, they would just liquidate the bank in a bankruptcy wiping out everyone's deposits.
Edit: In most countries there's also a deposit insurance scheme meant to cover cases of bank failure. But it can cover one or two banks failing, not all of them at once.
In Germany, everyone is protected up to 100,000 โฌ. So it would actually be a nice reset button where only the rich would "suffer"
Yeah except it's backed up by the government. So if it all comes due with the exact same time the people are still paying that money either way.
Source: ECB
It works by having a central fund to back the money that qualifies for the deposit guarantee, however said funds only contains 0,8% of covered deposits. Although this might seem small, this is still a large amount of capital (~40 billion euro), and should be able to cover all deposits during a major financial crisis (like 2008) according to this research (ECB funded).
Similar with the US FDIC:
The FDIC is primarily funded through assessments, which are insurance premiums paid by FDIC-insured institutions. These assessments are based on the balance of insured deposits and the risk posed by each bank. Additionally, the FDIC's Deposit Insurance Fund is invested in U.S. Treasury securities, earning interest that supplements the premiums paid by banks.