banks and bank holding companies

Reader comment on: Section 606 of New York State Banking Law

Submitted by lyle (United States), Mar 26, 2023 15:06

US law in contrast to many other nations does not allow a bank to use the bankruptcy process to resolve its issues.
Second because the business a bank is allowed to conduct is restrictive, many organizations, create a bank holding company to 100% own and control the bank. So these are two seperate legal entities and need to be considered differently.
Banking law generally allows a reciever to be appointed for an insolvent bank, in the US that is typically the FDIC
However the bank holding company can file for bankruptcy because it is now insolvent because its largest asset is no longer on its books.
In the Washington Mutual case, the holding company and the FDIC argued over whose money the holding companies deposits in the bank was after the failure.

On the specific point, investors invest in the Bank holding company (or another legal entity owned by the bank holding company for debt purposes), and should if they have done the due diligence know that the main asset of the bank holding company can be siezed under law.
In any case both Signature and SVB are bank holding companies, and SVB's holding company is now in Chapter 11. So the stock holders etc are involved in a bankruptcy proceeding and it
is clearly legal for investors to be wiped out in a bankruptcy (as in many many cases they have been)

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