![]() The main way banks get such ‘capital’ or ‘equity’ is by issuing shares – giving ownership of a proportion of the bank (and its profits) to someone in return for money. They are supposed to hold a significant proportion of such money, which is used so that banks are able to pay the people they owe money to (including depositors) if those who owe the bank money don’t repay. In addition, banks have ‘capital’ or ‘equity’ which is money they hold which does not come from borrowing. Banks are owed money by the people they lend to. Banks owe money to people who deposit money with them (who have effectively lent it) and also borrow in other ways (such as issuing bonds). This is effectively bailing out whoever the debt was owed to originally, as otherwise they would have received nothing, or had to accept cancellation of some of the debt.īanks both owe people money and are owed money. Other public institutions, such as the IMF, World Bank and EU, lend more money to enable these debts to be paid. Indirectly, banks and other financial institutions are often bailed out when governments are no longer able to pay their debts. The UK government gave them a bailout, and in return got part of the ownership of the banks through being issued their shares. Officially they were therefore bankrupt – owing more money than they owed. For example, during the 2008 financial crisis, it became apparent that British banks including RBS and Lloyds had lent large amounts of money that they were not going to be repaid (mainly through buying complex derivatives). ![]() Multilateral Investment Guarantee Agency (MIGA)Ī bailout is any use of public money to protect private financial institutions suffering from the negative consequences of their speculation, even if only in part.ĭirect bailouts in recent years have included by the British and Irish governments of British and Irish banks. ![]() ![]() International Centre for Settlement of Investment Disputes (ICSID) Debt relief/restructure/cancellation/haircut/swap/write-down/work-out ![]()
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