Not all of the savings would disappear, as the banks still had a lot of assets, but yes, depositors would lose money. That’s what fractional reserve banking is all about. If every depositor of the bank wants all of their money at the same time, it’s not all going to be there. That’s what a “run on the bank” is all about. It’s a risk you take by putting your money in a fractional reserve bank (as, that’s literally what it means…the reserves only account for a fraction of the total deposit liabilities).
However, in our current system, the FDIC insures depositors for up to $250,000…meaning your deposits are guaranteed for up to that amount…(meaning if your bank fails the FDIC will pay you back.) In reality this guarantee removes a large part (and for most people all) of the risk of putting your money in the bank. It has been argued that this distorts the market because where people would normally be interested in what their bank was doing with their money (i.e. how risky the bank was being and what it was investing in), in today’s world no one cares what their bank does, because their deposits are guaranteed anyway.
This is what is referred to as a “moral hazard”, in that risk that you would normally incur is removed, at no cost to you. This alters behavior, and in this case, means that banks are free to be more risky because their customers don’t care.
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