Bail-out Decision For Bank

BAIL-OUT DECISION FOR BANK Presented by: Priya sharma Mba-

What is bail-out? • Infusion of required funds for the purpose of ensuring that the bank is able to meet its commitments. • Practice of injecting liquidity to a business when it is bankrupt

• This can be done –

 By giving a loan to the bank By taking equity capital in the bank

Why ? • Establishing confidence Conducting activities properly Financial system due to stability

• Sensitive area  individual’s savings account Avoid panic situation

What is happening in the US ? • Largest investment banks taking a down turn or seeing a change in their status  Lehman brothers filed bankruptcy  AIG was near by bankruptcy  Merrill Lynch over by bank of America • US Federal reserve has devised $ 700 bn bail-out packages ( gigantic number to prove things seriously wrong) • Also introduced The Emergency Economic Stabilization Act, 2008

Cont…………. • That’s why, Paulson proposed that $700 bn of taxpayers money may be used to help the banks come on an even keel by buying their own liabilities , primarily in the form of mortgage bond that are hardly worth any thing now.

Bail-out plan • EMERGENCY ECONOMIC STABILIZATION ACT, 2008 • Stabilizing the economy

 Allow companies to insure their troubled assets.  Allow$700bn to treasury to access credits

• Taxpayer protection

 Tax payer shouldn’t be expected to pay for wall streets mistakes

• Homeownership preservation

 To help American families to keep their homes, HOPE PROGRAM  Direct federal agencies to modify loans that they control or own

• No windfalls for executives

 No one can take bonus of his own bad decision

• Strong oversight

 Divided in to 3 parts of $700bn  Oversight board to control over frauds , waste & abuse

How will US Government pay back the money • Assets or the bonds , that are worthless as of now, will be sold • stock & realty market stabilize in future • Bonds will gain back their value can be sold • Paid by taxpayer

How will bail-out help? • $700will be disbursed in installments. • 1st, get $250bn-buying bad mortgage bonds • Another $100bn will given the treasury or to president. • 3rd stage, $350bn will subject to congressional monitoring ( democrats & republicans)

Who gain the most? • Banking industry • Wall street • US economy • Borrowers  student loans  working capital loans  Housing loans New York Stock Exchange |

Why it is opposed? • Funds sufficiency for crisis on wall street • Prevailing wrong decision • Tax payer will have to shell out about $5500 to help finance the $700bn bail-out • Might increase taxes • Some economists think might it will not work

Who will lose the most? • US tax payers • Job lost people • US executives who caused this crisis

Bail-out in India? • In 2002, UTI was split in two parts-

 Stressed assets, whose value less than the quoted value  Healthy asset, which could continue to be managed profitably  Unit holder has an option of cash or tax-free interest bearing bond of a six year tenor that was better than market rates.

• Criticized by media and free market economists • Proved successful and profitable for the government • IFCI &IDBI CASE

In case of US? • The solution being attempted for the stressed companies in the US is identical to that successfully executed in India for UTI. AS-

 INVOLVES IT SEPARATING STRESSED AND HEALTHY ASSETS, GIVING LATTER TO PROFESSIONAL MGT. AND FORMER TO GET BEST VALUE OVER TIME,WHILE GURANTEEING THE SMALL INVESTOR AT LEAST HIS CAPITAL. BEAR STEARNS AND FREDDIE MAC  2 THOUGHTSo UNIVERSALITY OF THE LAW OR LOGIC o NO OPPOSITION GIVE CHANCES OF SUCCESS OF BAIL-OUT

Thanks