AssetPreserver News

I have been studying monetary policy, banking, the Fed, and overall money creation. I came across this snippet from THE CREATURE FROM JEKYLL ISLAND – A Second Look at the Federal Reserve which is relevant to today’s banking situation.

The FDIC has three options when bailing out an insolvent bank.

The first is called a payoff. It involves simply paying off the insured depositors and then letting the bank fall to the mercy of the liquidators. This is the option usually chosen for small banks with no political clout.

The second way is called a selloff, and it involves making arrangements for a larger bank to assume all the real assets and liabilities of the failing bank. Banking services are uninterrupted and, aside from a change in the name, most customers are unaware of the transaction. This option is generally selected for small and medium banks.

In both the payoff and selloff, the FDIC takes over the bad loans of the failed bank and supplies the money to pay back the insured depositors.

The third option is called a bailout. In a bailout, the bank does not close, and everyone – insured or not – is fully protected. Such a privileged treatment is accorded by the FDIC only rarely to a select few.

The select few are wealthy and powerful banks that are considered too big to fail without doing terrible harm to the community. Note that ALL deposits are covered; even those over the FDIC limit. This gives these banks a definitive competitive edge.