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Roubini has advocated bank recapitalization (by providing cash in exchange for preferred shares) and suspending all dividend payments. [ 108 ] Economist Paul Krugman recommended equity investments in the banks, an approach similar to what happened during the S&L crisis , the GSE bailout , and the 1990s Swedish banking rescue .
A householder unable to service his debt on a $180,000 mortgage for example, may by agreement with his bank have the value of the mortgage reduced (say to $135,000 or 75% of the house's current value), in return for which the bank will receive 50% of the amount by which any resale value, when the house is resold, exceeds $135,000.
The failure of IndyMac Bank on July 11, 2008, was the fourth largest bank failure in United States history up until the crisis precipitated even larger failures, [415] and the second largest failure of a regulated thrift. [416] IndyMac Bank's parent corporation was IndyMac Bancorp until the FDIC seized IndyMac Bank. [417]
The debt collection industry which includes debt buyers, "in-house collection departments, third-party collection agencies, and collection attorneys", recover and return "billions of dollars in delinquent debt" to "card issuers and other creditors" annually which "increase[s] the availability of consumer credit and reduce[s] its cost". [2]
Securitization is the financial practice of pooling various types of contractual debt such as residential mortgages, commercial mortgages, auto loans or credit card debt obligations (or other non-debt assets which generate receivables) and selling their related cash flows to third party investors as securities, which may be described as bonds, pass-through securities, or collateralized debt ...
To combat a bank run, a bank may acquire more cash from other banks or from the central bank, or limit the amount of cash customers may withdraw, either by imposing a hard limit or by scheduling quick deliveries of cash, encouraging high-return term deposits to reduce on-demand withdrawals or suspending withdrawals altogether.
These are interest-bearing accounts that pay in the range of 5% APY on deposits, which is a lot more than the 0.01% to 0.025% that traditional banks pay on accounts of the same kind.
On the one hand, higher interest rates imply that, for a given loan, the repayment (if it does take place) will be higher, and this increases bank profits; this is the direct effect. On the other hand, and crucially for credit rationing, a higher interest rate might mean that the safe types are not anymore willing to accept the loans and drop ...