It Can Happen Here: The Confiscation Scheme Planned For U.S. And U.K. Depositors

[amandabeech]

59. Under US law, if a bank is insolvent, it is either taken over by another bank

or closed.

If it's closed, you're only guaranteed to get back money in insured accounts.

That's been the law for a very long time.

A couple of years ago, a largish bank on the West Coast was insolvent and closed. No other financial institution wanted it, so the FDIC had to wind it down.

All accounts subject to $250,000 FDIC insurance were paid. All other deposits received 60 cents on the dollar.

The thing is, if a bank is a subsidiary corporation of some giant octopus-like financial corporation (like Citibank or JP Morgan, etc.), it is possible for the head of the octopus to go bankrupt but the bank subsidiary to remain solvent because subsidiary corporations are separate for most legal purposes.

As I read the FDIC/English bank regulator piece, it is proposal for how to have a bankruptcy of the octopus's head, while preserving the solvent bank subsidiary and some other subsidiaries that are solvent and have roles that are important to the economy at large. One problem when the big financial companies started to wobble was that the FDIC did not have the authority or a plan to wind them up, which helped the crooks in charge make the argument that they had to be fully bailed out. It is possible that if one of these things goes down again, a progressive administration might actually let the FDIC keep the bank going and wind down or sell the rest of it.