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Interesting that you mentioned American Airlines going through bankruptcy - that one was unusual in that the stockholders actually came out of that doing quite

Interesting that you mentioned American Airlines going through bankruptcy - that one was unusual in that the stockholders actually came out of that doing quite well. In nearly every bankruptcy, the equity gets wiped out (that’s why the firm is insolvent - its liabilities exceed its assets, and there’s nothing left for equity after the liabilities get paid out in order of priority). In bankruptcy, though, I’m not sure why depositors would get treated any differently based on their account balances. Assuming we’re not talking about an FDIC insured institution, I would think they’d all be in the same class of general unsecured creditors. There was a bank bail-in a few years back (Malta or Cyprus, I think) where depositors with larger balances took a bigger haircut than the mom ‘n’ pops, widows and orphans, but I think that was a function of their entire financial system melting down, not having a deposit insurance regime and being a haven for Russian oligarchs stashing their cash overseas (and thus just about the least sympathetic depositors imaginable).

kristopolous 4y ago
The Malta/Cyprus crisis is the most recent. There's other tactics that was used in Greece and in the US before the FDIC. First in, first out + daily cap. In this model, the institution states they have $X of liquidity say tomorrow, you can withdraw up to $Y. You do X/Y and you get the number of customers that can withdraw the maximum amount. My grandparents lived in Chicago at the time and said there was a time when a separate family member would be in line 24 hours a day. One for tomorrow and one for the day after that, etc. But even then they got back like $0.20 on the dollar (my last grandparent died about 30 years ago so forgive me if some details are off) But generally speaking a good faith effort is made to honor the depositors balances. The schemes to do so varies, but it's generally not 0. These people running these institutions might be gamblers but they generally aren't sociopathic soulless con-artists - there's more lucrative things to do for those with no moral compass

kristopolous 4y ago

The Malta/Cyprus crisis is the most recent. There's other tactics that was used in Greece and in the US before the FDIC. First in, first out + daily cap. In this model, the institution states they have $X of liquidity say tomorrow, you can withdraw up to $Y. You do X/Y and you get the number of customers that can withdraw the maximum amount. My grandparents lived in Chicago at the time and said there was a time when a separate family member would be in line 24 hours a day. One for tomorrow and one for the day after that, etc. But even then they got back like $0.20 on the dollar (my last grandparent died about 30 years ago so forgive me if some details are off) But generally speaking a good faith effort is made to honor the depositors balances. The schemes to do so varies, but it's generally not 0. These people running these institutions might be gamblers but they generally aren't sociopathic soulless con-artists - there's more lucrative things to do for those with no moral compass