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Ok, relative newby here with a couple of technical questions about the legal processes involved during bank failures.
Some are calling for the FDIC to seize ("nationalize") certain larger banks. I understand the FDIC has the legal recourse to do this under certain conditions. When this occurs, the shareholders' position would, by definition, be wiped out -- but the bondholders conceivably could have value in their position if the FDIC transfers the seized bank's assets/liabilities to another bank.
Now, I also understand that it is possible for banks to declare Chapter 11 bankruptcy -- for example, WAMU did so last September after it was seized. When this occurs, the position of the bondholders (and any other creditor to the bankrupt bank) would be wiped out -- but the position of the shareholders could conceivably retain some value in that the firm could could "emerge" from bankruptcy.
First question: is my understanding of these two legal processes fundamentally correct?
And second, does this explain why some (bondholders) are calling for bank seizures and others (shareholders) are resisiting?
Some are calling for the FDIC to seize ("nationalize") certain larger banks. I understand the FDIC has the legal recourse to do this under certain conditions. When this occurs, the shareholders' position would, by definition, be wiped out -- but the bondholders conceivably could have value in their position if the FDIC transfers the seized bank's assets/liabilities to another bank.
Now, I also understand that it is possible for banks to declare Chapter 11 bankruptcy -- for example, WAMU did so last September after it was seized. When this occurs, the position of the bondholders (and any other creditor to the bankrupt bank) would be wiped out -- but the position of the shareholders could conceivably retain some value in that the firm could could "emerge" from bankruptcy.
First question: is my understanding of these two legal processes fundamentally correct?
And second, does this explain why some (bondholders) are calling for bank seizures and others (shareholders) are resisiting?