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 THOUGHTS-
o UNIVERSALITY OF THE LAW OR LOGIC
o NO OPPOSITION
GIVE CHANCES OF SUCCESS OF BAIL-OUT
Thanks