View Full Version : How and why do commercial banks fail?
unclesammy
Nov 21, 2010, 02:37 PM
I have visited many sites, including FDIC, to find out exactly how and why a commercial bank fails. All the sites have endlessly discussed the failures without ever having described how. Is it from giving faulty loans or buying diravatives from other institutions? Or both? Is all of this info a big secret?
Curlyben
Nov 21, 2010, 02:40 PM
Simple really, GREED.
They over stretched their positions and when the markets started to unravel they had no back up, in either hard cash or credit lines they could call on.
Wondergirl
Nov 21, 2010, 02:54 PM
1) Regulators can be sloppy.
2) The government can push too hard to promote e.g. home ownership.
3) The government can issue fraudulent interest loan ratings for toxic bonds.
4) The government can pay millions for these fraudulent ratings.
5) The government can gain billions of dollars for selling this known garbage to unsuspecting victims.
6) The investment banks and rating agencies can perpetrate fraud.
7) It comes down to greed.
DownUnder
Nov 21, 2010, 06:00 PM
Greed,Greed and more greed! Remember the love of money is the root of all evil!
Fr_Chuck
Nov 21, 2010, 06:27 PM
Remember banks do not have all of their vaults just full of your cash, they loan them out to people to buy investment property, homes, cars, personal loans. They will also put them in investments.
So remember this is also not their money, it is the money of people who deposit money. So if and when people don't pay the loans, they lose money in investments, they have less money on the books, than the money they owe to the people who deposited the money.
That is a very simple version. It is a lot more complicated in the movements of money and federal and state banking laws.