Personal Finance

If a bank were to go under, which is the safer option?

  • Last Updated:
  • Nov 8th, 2013 4:17 pm
User avatar
Feb 15, 2008
26318 posts
Busybuyer888 wrote:
Nov 8th, 2013 4:02 pm
It is riduclous for OP to pose the question and then further say ALL banks will fail.
Most banks did fail in the US circa 2008/2009. Substantially all of them. Some obviously worse than others.
What OP is saying is almost a complete collapse of the Canadian financial system. What makes OP think anything in the stock market will be worth anything at that point?
There are lots of companies that do not rely upon continuously revolving credit, have solid finances, that are not at the whims of the banking system. These firms would not become worthless. Actually these firms may very well be best positioned to pick up the pieces.

I personally believe the US economy would be far more sound if companies that ran solid businesses were allowed to acquire the banks in the 2008/2009 crash. For instance, Wal-Mart, Microsoft, Qualcomm, Boeing, Verizon, etc. Remember that most of the big banks can be traced back to industrialists who ran solid businesses, and used their credibility and capital backing in running railways, steel mills, chemical plants, oil wells, etc., towards running banks.
Or does OP have so much money (ie. $25 million), that even a 10% recovery is fine.
Well its not so much of a problem for rare individuals who have $25M in cash, but rather, its a problem if you're running a business and have $25M in an account waiting for payroll.
The governement has to step in an insure the deposits (by any means) because, it would be total anarchy in the streets - no one has money to buy food. Lots of stealing, followed by killings.
Well prompt and aggressive use of resolution authority, and proper bank supervision including heavily discounting assets for which the underlying value/collateral is only minimally observable prevents any loss of value in insured and even uninsured deposits.

However, as we saw in the USA circa 2008/2009, many banks were not properly supervised, and there were severe problems in the use of resolution authority. After all, if you're a bank manager, and you have a bunch of bad assets on the books, but can still generate cashflow -- you're going to, of course, argue vigorously against the bank regulators declaring your institution insolvent.

Luckily in Canada, the situation is significantly different as Canadian banks do not tend to carry much in terms of long-term assets, so there is far greater visibility as to the value of the collateral itself, and less volatility.
TodayHello wrote:
Oct 16th, 2012 9:06 pm
...The Banks are smarter than you - they have floors full of people whose job it is to read Mark77 posts...