Assisted Merger

  

Categories: Banking, Insurance, Econ

Companies go out of business. It's part of the capitalist life cycle. If a business can't compete for whatever reason, it slips into oblivion, making room for other firms to pop up. (Cue: "Circle of Life" from the Lion King.)
But sometimes these failures come with complications. This is especially true for banks. Because banks sit at the center of the flow of capital, and because people and other businesses rely on banks to keep their money safe and warm, a bank failure can cause a dramatic ripple effect.
So there's a sizable regulatory structure in place to avoid any negative repercussions from bank failures. One of the devices used by regulators to sidestep the fall out of a bank going out of business is an assisted merger.
Basically, in an assisted merger, regulators help a failing bank find another bank to merge with. In the U.S., these actions are spearheaded by the Federal Deposit Insurance Corporation, or FDIC, the same people who guarantee bank deposits. Because the FDIC is on the hook for any deposit claims if a bank fails, Congress gave the organization the ability to avoid failures through an assisted merger process. If a dangerous situation comes up at an FDIC member bank, the regulator can help facilitate a transaction to move assets to a more stable institution.

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Finance: What is the FDIC?6 Views

00:00

Finance allah shmoop What is the f d i C

00:06

the dick that's How you pronounce it there in the

00:09

wall street art federal deposit insurance corporation That's what it

00:15

is but what is it Well it's insurance bank insurance

00:20

Can you think of anything more boring That is when

00:22

you deposit eleven thousand three hundred forty two dollars of

00:25

wedding cash that was stuffed in your spouses Undergarments from

00:29

the you know the money dance into your bank of

00:31

america account Well you don't have to worry that it'll

00:34

ever just disappear So why is that even a thing

00:38

like why do you even have to worry about money

00:40

disappearing in a bank Well in the great depression which

00:44

was way more severe than the pretty good depression that

00:46

happened twenty years earlier late nineteen twenties early nineteen thirties

00:50

while banks did in fact collapse there was panic The

00:53

population raced to the banks to withdraw all of their

00:57

cash Teo you know stick under their mattresses And since

01:00

banks on lee carried on hand maybe a few percent

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five maybe ten percent of their total deposits like all

01:07

the rest was invested in stocks or loaned in home

01:10

Mortgages or for the brand new hot off the line

01:12

butter churn or three thousand they didn't have the money

01:15

The bank simply didn't have the cash when it was

01:18

demanded by customer depositors and well bad things happen when

01:22

they turned their pockets inside out It was panic and

01:26

about a third of all banks simply failed the population

01:29

for a brief moment in time lost trust in the

01:32

american banking system and had to really really really bad

01:36

like imagine trying to get a mortgage in somalia today

01:39

Like would you trust a somalian bank Tough room So

01:42

the government created the dick fbi see as a kind

01:46

of insurance company guaranteeing that bank defaults won't happen again

01:50

So the initial insurance limit was set at twenty five

01:53

hundred bucks per ownership category like one deposit or but

01:56

remember that nineteen thirty three twenty five hundred bucks could

01:59

buy you like a house So that was a lot

02:02

of money back then A variety of laws were passed

02:05

in the near century since then and today the fbi

02:07

see insures up to two hundred fifty thousand dollars per

02:10

ownership category Well with that limited place banks are more

02:14

Or less insured against anything disastrous befalling them although you

02:18

know if a bank fails uncle sam can just come

02:21

on in and bail him out Yeah it's good to 00:02:24.745 --> [endTime] be a bank Thank you very much

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