pull down to refresh
11 sats \ 4 replies \ @orthzar 10 Mar 2023 \ on: Will the collapsing banks get a bail out? bitcoin
Legally, Congress banned bail-outs after the bail-outs in the Great Recession. Now, banks are mandated by that law to conduct bail-ins in the event of insolvency.
For those who don't know, a bail-in means that money accounts in banks will be taken, partly or entirely, and replaced by stock in the bank. That money will then be used to make the bank solvent again. All of this process is controlled by whatever US Federal agency regulates banks.
I don't know how much money people will lose to bail-ins, but it is probably related to how much the FDIC can cover. And the FDIC cannot cover all the deposited money in all US banks -- they probably can't cover even half of the savings accounts in the US.
So, when tons of banks start becoming insolvent, Americans are going to lose a lot of money and will get bank stock instead. And they're going to sell that stock as soon as possible, because they have bills to pay and food to buy.
I completely forgot about bail-ins... You are absolutely correct.
reply
You're not alone. Almost nobody knows about bail-ins. With the troubles that some US banks are having right now, a lot of Americans might learn about bail-ins the hard way very soon.
I have a savings account, so this is a concern for me personally. While that account is nowhere near the $250k FDIC limit, I have no faith in the FDIC's ability to cover even my meager savings account.
reply
As far as I am aware bail outs are not "banned". There have been some changes in policy following the financial crisis of 2008-2009. The Dodd-Frank Wall Street Reform and Consumer Protection Act, passed in 2010, includes provisions designed to reduce the likelihood and impact of future financial crises. One example is the creation of the Orderly Liquidation Authority (OLA). This allows the government to intervene and wind down failing financial institutions in an orderly way, supposedly without relying on taxpayer-funded bailouts. The OLA is intended to prevent a repeat of the "too big to fail" scenario.
In addition to the OLA, Dodd-Frank also includes provisions that require banks to develop plans for their own resolution in the event of a crisis which are designed to ensure that troubled institutions can be wound down in an orderly way. For whatever that's worth.
There has been a shift towards the idea of "bail-ins" in some quarters. But, it's not really been tried on a large scale problem. The Jury is out on if it would help at all or just cause the contagion to spread quicker. I'm in the quicker camp but that's my $.02. lol.
reply
Yeah, on the surface it seems like bail-ins would just speed up the failure. In a way, this would be better than dragging it out and it would teach us a lesson about trust and custody. I don't trust the banks or the state or that they will follow "the law".
reply