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What Happens If A Major Bank Goes Bust?

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Given the UK and US debt situation, it's not beyond the realms of possibility that a major bank might go bust in the not-so-distant future.

What would the consequences be?

On a personal level, say you had a 60% mortgage with that bank. The bank goes bust. What happens to your house? Who owns it then? You?

What would happen to any money that you had with that bank?

And what would the repercussions be on a less individual and more communal or national level?

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It would be sorted out by the central bank and mopped by competitors as a major failure would have a major impact on wider confidence in the whole system. The banks are essentially dominoes protected by the central bank, they operate in what amounts to an organised cartel, meaning banks cannot bankrupt one another should there be a run.

This has already happened in the US over the years and mopped up by the Fed :-

Savings and Loan crisis


The Russian Default of 1998

Credit Lyonnais bailout

The dotcom, Enron/Worldcom/Tyco and 9/11 fallout was actually the biggest bail outs of all time, the impact was softened by a massive injection of liquidity, essentially a 'wall of money' hitting the markets, we still see the after affects to this day in the form of asset bubbles.

Japanese banks are also sitting on lots of bad loans from the late 80's.

Edited by BuyingBear

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