6. Dealing with a failed institution

Suppose Nash Bank is a local bank in Tennessee. According to the CAMELS rating system, it is failing and liquidation of the banks assets would not be enough to pay off the depositors.

Which of the following scenarios is most likely to take place?

The FDIC will pay off the insured depositors to the stated maximum. Uninsured depositors would obtain pennies on the dollar of deposits they had. Subordinated debt holders would be paid only after all of the depositors were paid in full, if possible.

The FDIC will find a healthy bank to purchase the failed Nash Bank and assume all of the Nash Banks liabilities. As a result, no depositor would lose any of his or her deposits.

Nash Bank would not be liquidated. Instead the FDIC, the Fed, and the U.S. Treasury would combine their efforts to find a way to inject capital into the bank.

This approach to a failing bank is called_______(too big to fail, purchase and assume, or pay off and liquidate)