General Discussion
In reply to the discussion: @JohnFetterman to SVB exec Greg Becker:"Shouldn't you have a working requirement after we bail out [View all]grantcart
(53,061 posts)Creates a bank that has more assets than liabilities because the obligations on the balance sheet that reflect the paid up capital are reduced to zero. That means that the bank that takes over gets all the assets and liabilities from the previous company but doesn't have to pay the previous owners anything.
Think of it as if you are buying a house which has equity of $ 100,000 and a mortgage of $ 50,000. In this case you take over the mortgage but don't have to pay anything to the owners for the equity.
We don't have a lot of bank failures but while it was larger than most it was only half as large as the Washington Mutual collapse.
Once the bank goes into receivership the FDIC contacts banks it seems good candidates for take over and receives offers from the banks, all of which are eager to take over the bank at pennies on the dollar. In the Washington Mutual case JP Morgan was able to acquire WM's assets of $ 307 Billion for only $ 1.9 Billion so these take over banks are volunteering, not forced to do it.
Because it is happening very quickly and the shareholders of the bank in receivership have no voice they can appeal after the fact to a federal bankruptcy trustee for redress but they are usually out of luck.
In any case no tax dollars are involved and no payments from the FDIC were involved but the speaker in question has purposely misrepresented the issue to inflame emotional reactions which is unfortunate and counter productive in the long run.