Originally Posted by
Ajax Knucklebones
TARP is basically the short name for the bailout.
FDIC is the insurance company that insures customer's money up to $250,000.00. FDIC decides what banks have failed and shuts them down.
The TARP money basically raises the company's capital. The higher the capital, the easier it is for banks to borrow from other institutions to lend out funds to customers. When the bank's capital ratio is too low, FDIC will go in and shut the down...(or if there's a run on the bank like IndyMac, FDIC will also shut them down).
So smaller banks can't get borrow the TARP money to raise their capital to stay in business, but bigger banks can and then the bigger banks, that borrowed the TARP money, buy up the shut down smaller banks as a fire sale (dirt cheap). The truth though is that TARP was to be used to raise capital, helping banks stay open, so more lending can be done...Not for bigger banks to use it to buy shut-down banks to become bigger.
Bookmarks