Confidence Crash

Many banks point to the fall of the Bank of New England as a major culprit in undermining customer trust in the banking industry.

"The public in general has been unnerved by the Bank of New England collapse," McGilzreay said, pointing out that 11 other Massachusetts banks also collapsed in the past year.

Yet with the exception of a run on the Bank of New England the day it announced its insolvency, the mile-long lines to withdraw deposits that were so familiar during the Great Depression have been noticably absent.

The depositors' sense of security can be attributed in part to the Federal Deposit Insurance Corporation (FDIC) and the Federal Reserve's expansionary actions, which have cushioned the impact of the bank failures, Holmes said.

"Since the FDIC stepped in the said they would insure any amount, there really wasn't much of a reaction of panic here," Holmes said.

To counter the recession, the Federal Reserve has loosened its grip on the money supply, bringing interest rates down and expanding the economy's cash flow, said both Holmes and McGilzreay.

"There's plenty of money around," Holmes said. "What we have to do is rebuild everyone's confidence."

Harvard's role

Keegan pointed out that Cambridge banks also reap economic cushioning from their reliably wealthy neighbor--Harvard University

As the city's largest employer, the university is continuing to operate at full capacity despite the recession.

Along with MIT, another of Cambridge's top employers, Harvard is holding the city's unemployment down and its infrastructure intact and healthy, Keegan said.