So… if a large bank fails in the US, the FDIC steps in and takes over, replacing management, and works to shrink the bank by writing-down liabilities and converting debt into equity.
In other words… any liability at the bank is in danger of being written-down should the bank fail. And guess what? Deposits are considered liabilities according to US Banking Law and depositors are creditors.
So… if a large bank fails in the US, your deposits at this bank would either be “written-down” (read: disappear) or converted into equity or stock shares in the company. And once they are converted to equity you are a shareholder not a depositor… so you are no longer insured by the FDIC.
So if the bank then fails (meaning its shares fall)… so does your deposit.
Let’s run through this.
Let’s say ABC bank fails in the US. ABC bank is too big for the FDIC to make hold. So…
Let’s say you have $1,000,000 in deposits at financial institutions ABC. When ABC fails, your deposits are converted into $1,000,000 worth of ABC’s stock (let’s say you get 1,000,000 shares valued at $1 each for $1,000,000).
Now let’s say ABC’s shares fall in value from $1.00 to $0.50.
You just lost $500,000 of your wealth.
This is precisely what has happened in Spain during the 2012 banking crisis over there.
And it is perfectly legal in the US courtesy of a clause in the Dodd-Frank bill.
This is the template for what’s going to be implemented globally in the coming months. When push comes to shove, it will be taxpayers, NOT Central Banks who are on the hook for the next round of bailouts.
Indeed, we’ve uncovered a secret document outlining how the Feds plan to take hold of savings during the next round of the crisis to stop individuals from getting their money out.