What constitutes a bank "failing"?

Question

I'm reading the articles and I don't get it... if they have assets and deposits, that are more than the debts they have out as loans, how are they a failed bank? Could someone clear this up for me, thanks!

Answer 1

I think your misreading something . . . if they have assets and deposits that are more than their debts than they are not failing . . . I think, I'm not a mind reader so I'm guessing about what you've read . . . so again, I think you've read something about mortgage backed securities . . . so depending on which accounting technique the bank is using the bank could either be bankrupt or profitable  . . . google mark to market accounting practices . . .

A quick primer on MBS . . . over 90% of the loans (sometimes as high as 98%) are performing . . .  which means over 90% of all the mortgages that our contained within the "security" or stock group have home owners that are paying . . . however the people that buy these securities have no faith in the system and have stopped purchasing so you have a unique situation . . . you can evaluate the security on performance (of mort. payments) terms and show a profit . . . or you can evaluate the security as to what you could sell it for on the stock exchange and come up with a negative value ( a zero value (since no one will buy it) less taxes and administrative fees) . . .

Mark to market accounting is the norm . . . so these companies must value the security or mark the security for what they could sell it for on the open market . . . no buyers means zero value . . .

And one other "google" try banking spreads . . . cash reserves vary from bank to bank . . . Freddi has a congressional cash reserve of $1.00 on hand for every $67.00 lent . . . my husband's bank has a cash reserve of $15.00 for every $100.00's lent . . . so legally they are only required by FDIC to keep 15k per every 100k lent . . . the spread is a major culprit in this crisis . . . so if a bank fails to maintain it's spread, the FDIC declares it "failed"