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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