Potter calls his loan on the Bailey Building and Loan (BBL), which depletes their entire cash reserve. He then takes over the bank and offers to buy the BBL customers’ shares for half of what they’re worth. The BBL customers figure that’s better than nothing so they go to withdraw all their cash from the BBL and put it in Potter’s bank. Questions:
1.) Potter takes over the bank. How?
2.) If Potter is taking over the bank, why is there a run on it? The bank isn’t failing, it’s just being taken over, right?
3.) Are cash and shares the same thing? If so how does Potter offer “50 cents on the dollar” to BBL customers for a cash deposit?
4.) As the majority stockholder in the BBL doesn’t Potter have a vested interest in the BBL’s success? Why does he want to destroy it?
4.) After Potter takes over the bank he says that the bank will close for 5 days and then re-open. Why does the bank have to close for 5 days?
5.) Potter warns George Bailey that if the BBL closes before 6:00, it will never re-open. Why?
I just took part in a ‘live radio play’ theatre presentation of IAWL. That’s about as far as my expertise extends, but I can answer 4) - he can’t control it so he wants to destroy it and thus control lending in Bedford Falls (or ‘Potterville’ as it would be without George Bailey). He doesn’t care for the lower orders being enabled to rise above the gutter. The gutter keeps them hungry (it’s almost a communist film…). Potter likes control.
And 5) - it’s “in the charter”. Those are the terms on which it is established - I don’t know how realistic that might be, but it is stated explicitly in the radio script and would probably be in the original.
A stab at 3) - It’s all about control. Let people know that what little they do have is a privilege. Potter is the villain. Our audiences booed and hissed him at the curtain calls. YMMV.
I had assumed that there was the possibility of all creditors losing all their investment. They would have assumed (I assume) that it would be best to get theirs right now, before it ran out. But with the possibility of it running out, let’s assume plenty would take a solid offer of half over the possibility of nothing.
I don’t know precisely what a ‘building and loan’ might be, but in the UK ‘building societies’ accepted your deposits, which were considered ‘shares’ in the society.
As for 1), there’s no detail in the script, but since Potter owns pretty much everything else, I suppose he has the only reliable cash supply in the area. That’s a lot clout, if you fancy owning the bank too.
Banks are companies. You can buy those. He takes control of a separate bank that holds a loan that Bailey has taken out.
Then he calls in that loan in a bid to put Bailey out of business. Part of that strategy involves starting a bank run that he can survive just fine but Bailey could not.
He deliberately starts a bank run that he could handle but Bailey could not.
The BBL depositors were worried about the status of their money. Potter was offering a way out that would have guaranteed Bailey couldn’t honor the Building and Loan’s deposits.
They would get 50 cents in the Potter bank for every dollar they had in the Building and Loan while Potter gets control of their B&L deposits, checkmating Bailey. It would have worked, too, except for those darned kids (and their dog).
He’s a slum lord and has his own bank. If the B&L fails, he has a monopoly on the housing market in town. He’s already pissed off because Bailey is taking business away by providing decent, affordable to people instead of the expensive slums he offers.
That, and you get the sense the Baileys weren’t financial wizards. I doubt the B&L made much money in any case.
If you could make $100 by giving up $2, it’s not much of a risky play.
It doesn’t. But he was deliberately trying to start a panic.
They’d be failing to honor deposits. If they closed early, they are admitting they could not honor requests from their depositors. By surviving to the end of business, they made it until they could get liquid assets with which to pay out their depositors the following week.
I believe that it was a case of the bank run. People were withdrawing more cash than the bank had. Perhaps they didn’t hold the required cash reserves as mandated by law? Or the run just depleted everything they had.
At that point, they had two choices - bankruptcy for the bank, or a “loan” from Potter to cover the shortfall. Naturally, the “loan” came with certain strings, the biggest of which Potter was either legally (like he bought out the owner and he is gone) or at least effectively (he demanded managing control of bank operations as collateral for the “loan”) owner of the bank.
I’m sure they had the legally required cash reserves; George was too careful not to. But the legally required cash reserve would not be adequate to service everyone closing their accounts at once. It COULDN’T be, because then the building & loan wouldn’t be able to make any loans or build any houses. The whole point of such an institution is for its depositors to pool their money so that some people will be able to use significant portions while others, whose money is being lent, earn interest.
Remember that one guy who insisted on closing his account entirely? If he had followed the rules, and everyone else done likewise, there’d have been much less trouble and possibly none.
Back in the S&L scandal days, someone put together a summation/comparison of the scandal by using selected quotes from IAWL. Made Bailey look like Keating. I wish I had a copy of that.
And thanks for the answer to the second 4). I always wondered why 5 days. Arcane baking regulation? Federal reaction to the depression? Nope, just mean ol’ Potter!
And as for 5), what happens the next day if someone else comes in? They won’t have any more money by opening time, will they? And thank goodness that Miss Davis only took $17.50 - she save the B&L!
You are mistaken. Potter never takes over the BBL in the “reality” scenario of the movie. It’s implied that he took it over in the George-never-born scenario.
There is a run on the bank because the BBL’s loan was “called”–that is, the bank which loaned money to the BBL demanded early payment. The BBL will have no cash left. The depositors fear that the BBL will be liquidated and they will get only a small fraction of their deposits back.
Yes. Old-time savings & loan and building & loan deposits were often characterized as “shares” and conferred voting rights, like mutual insurance premiums. The shares were negotiable, so Potter could buy the “shares” (basically, certificates that money was on deposit) at a discount price. Potter than would be entitled to withdraw the money from the BBL (after 60 days) or, if the BBL became insolvent, get whatever he could out of the liquidation.
Potter is not a majority stockholder in the BBL. He is probably a stockholder, since he is on the Board of Directors. The BBL is his competition. Yes, he will lose on his equity if it goes insolvent. But in the long run he will benefit by being the only bank in town, able to pay lower interest on deposits and charge more for loans.
4(b). To give time for the BBL to be recapitalized and reorganized.
There would be regulatory intervention if the BBL closed during business hours to forestall a run. Or, this would demonstrate to the Board of Directors that the BBL was no longer viable and they would vote control to Potter.
Just Asking Questions got the chronology right. Here’s a little background.
That particular scene in the movie was set at the beginning of the Great Depression. At that time there wasn’t anything like the Federal Deposit Insurance Corporation, so if a bank failed, the people with money in that bank were SOL. That’s why there were bank runs – people trying to get their cash before the bank failed.
Neither Potter’s bank nor BBL had all the cash on hand they would need if all the customers demanded all their money at once (for that matter, even today no bank has enough cash on hand to pay out to all their customers in one day.) Potter gave a personal loan to the bank, and called the bank’s loan to BBL. That gave Potter’s bank enough cash enough cash, but drained BBL’s cash. That’s when Uncle Billy closed the doors, which caused BBL customers to panic.
The bank would close for a few days to let the bank examiners come in, go over the books, and declare that it was sound enough to continue. But in the meantime, the bank’s customers couldn’t get to their money.
Now BBL wasn’t really set up to be an everyday bank. All its assets were tied up in mortgages, which is why BBL was borrowing operating funds from Potter’s bank. (Remember, George told Tom it would take 60 days to get his money out of BBL.)
So with Potter’s bank closing temporarily, and BBL looking like it was shutting down as well, Potter offered to buy BBL depositor’s shares at 50 cents on the dollar. That would give him ownership of both financial institutions in town (along with the slums, the bus line, the department stores and who knows what else.) The BBL depositors would get quick cash.
