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
Finance allah shmoop What is the f d i C
the dick that's How you pronounce it there in the
wall street art federal deposit insurance corporation That's what it
is but what is it Well it's insurance bank insurance
Can you think of anything more boring That is when
you deposit eleven thousand three hundred forty two dollars of
wedding cash that was stuffed in your spouses Undergarments from
the you know the money dance into your bank of
america account Well you don't have to worry that it'll
ever just disappear So why is that even a thing
like why do you even have to worry about money
disappearing in a bank Well in the great depression which
was way more severe than the pretty good depression that
happened twenty years earlier late nineteen twenties early nineteen thirties
while banks did in fact collapse there was panic The
population raced to the banks to withdraw all of their
cash Teo you know stick under their mattresses And since
banks on lee carried on hand maybe a few percent
five maybe ten percent of their total deposits like all
the rest was invested in stocks or loaned in home
Mortgages or for the brand new hot off the line
butter churn or three thousand they didn't have the money
The bank simply didn't have the cash when it was
demanded by customer depositors and well bad things happen when
they turned their pockets inside out It was panic and
about a third of all banks simply failed the population
for a brief moment in time lost trust in the
american banking system and had to really really really bad
like imagine trying to get a mortgage in somalia today
Like would you trust a somalian bank Tough room So
the government created the dick fbi see as a kind
of insurance company guaranteeing that bank defaults won't happen again
So the initial insurance limit was set at twenty five
hundred bucks per ownership category like one deposit or but
remember that nineteen thirty three twenty five hundred bucks could
buy you like a house So that was a lot
of money back then A variety of laws were passed
in the near century since then and today the fbi
see insures up to two hundred fifty thousand dollars per
ownership category Well with that limited place banks are more
Or less insured against anything disastrous befalling them although you
know if a bank fails uncle sam can just come
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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