Bail-out Decision for Bank

8/14/2019 Bail-out Decision for Bank

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BAIL-OUT DECISIONAIL-OUT DECISIONFOR BANKOR BANK

Presentedby:

Priyasharma

Mba-


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What is bail-out?What is bail-out?

Infusion of required funds for the purpose ofensuring that the bank is able to meet itscommitments.

Practice of injecting liquidity to a business whenit is bankrupt This can be done

By giving a loan to the bank

By taking equity capital in the bank


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Why ?Why ?

Establishing confidenceConducting activities properly

Financial system due to stability

Sensitive area individuals savings account

Avoid panic situation


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What is happening in theWhat is happening in the

US ?US ?

Largest investment banks taking a down turn orseeing a change in their status

Lehman brothers filed bankruptcy

AIG was near by bankruptcy

Merrill Lynch over by bank of America

US Federal reserve has devised $ 700 bn bail-outpackages ( gigantic number to prove things

seriously wrong)

Also introduced The Emergency EconomicStabilization Act, 2008


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Cont.Cont.

Thats why, Paulson proposed that$700 bn of taxpayers money may beused to help the banks come on an

even keel by buying their ownliabilities , primarily in the form ofmortgage bond that are hardly

worth any thing now.


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Bail-out planBail-out plan

EMERGENCY ECONOMIC STABILIZATION ACT, 2008 Stabilizing the economy

Allow companies to insure their troubled assets. Allow$700bn to treasury to access credits

Taxpayer protection Tax payer shouldnt be expected to pay for wall streets mistakes

Homeownership preservation To help American families to keep their homes, HOPE PROGRAM Direct federal agencies to modify loans that they control or own

No windfalls for executives No one can take bonus of his own bad decision Strong oversight Divided in to 3 parts of $700bn Oversight board to control over frauds , waste & abuse


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How will US Government payHow will US Government pay

back the moneyback the money

Assets or the bonds , that areworthless as of now, will be sold

stock & realty market stabilize infuture

Bonds will gain back their value canbe sold

Paid by taxpayer


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How will bail-out help?How will bail-out help?

$700will be disbursed in installments. 1st, get $250bn-buying bad mortgage bonds Another $100bn will given the treasury or to

president.

3rd stage, $350bn will subject to congressionalmonitoring ( democrats & republicans)


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Who gain the most?Who gain the most?

Banking industry Wall street US economy Borrowers student loans working capital loans

Housing loans

New York StockExchange |


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Why it is opposed?Why it is opposed?

Funds sufficiency for crisis on wallstreet

Prevailing wrong decision Tax payer will have to shell out about$5500 to help finance the $700bn

bail-out

Might increase taxes Some economists think might it will

not work


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Who will lose the most?Who will lose the most?

US tax payers Job lost people US executives who caused this

crisis


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Bail-out in India?Bail-out in India?

In 2002, UTI was split in two parts- Stressed assets, whose value less than the quoted value

Healthy asset, which could continue to be managed profitably

Unit holder has an option of cash or tax-free interest bearingbond of a six year tenor that was better than market rates.

Criticized by media and free market economists Proved successful and profitable for the government IFCI &IDBI CASE


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In case of US?In case of US?

The solution being attempted for thestressed companies in the US is identicalto that successfully executed in India forUTI. AS-

INVOLVES IT SEPARATING STRESSED AND HEALTHYASSETS, GIVING LATTER TO PROFESSIONAL MGT.AND FORMER TO GET BEST VALUE OVERTIME,WHILE GURANTEEING THE SMALL INVESTORAT LEAST HIS CAPITAL. BEAR STEARNS ANDFREDDIE MAC

2 THOUGHTS-o UNIVERSALITY OF THE LAW OR LOGICo NO OPPOSITION

GIVE CHANCES OF SUCCESS OF BAIL-OUT


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ThanksThanks

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Bail-out Decision for Bank