Question

To bail-in an insolvent commercial bank, A. the government is required to inject capital into the bank B. the bank's creditors or depositors are required to convert their loans or deposits into the bank's assets the bank's borrowers are required to repay more than their original obligation D. the government is required to cover the bad debts of the bank E the bank's creditors or depositors are required to convert their loans or deposits into the bank's equity

Answer 1

Solution:-

To bail-in an insolvent commercial bank,..........

E. the bank's creditors or depositors are required to convert their loans or deposits into the bank's equity.

Explanation:-

With a bank bail-in, the bank uses the money of its unsecured creditors, including depositors and bondholders, to restructure their capital so it can stay afloat. In effect, the bank is allowed to convert its debt into equity for the purpose of increasing its capital requirements. A bank can undergo a bail-in quickly through a resolution proceeding, which provides immediate relief to the bank. The obvious risk to bank depositors is the possibility of losing a portion of their deposits. However, depositors have the protection of the Federal Deposit Insurance Corporation (FDIC), which insures each bank account for up to $250,000. Banks are required to use only those deposits in excess of the $250,000 protection.

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