NPR presented an expert asserting that the taxpayers would be liable for all bank debt when it takes over bankrupt banks. This is not true. The government has no legal liability for the bad debt of bankrupt banks. It has generally honored not only the deposits but also the bonds of banks that were taken over by the FDIC, but it has no obligation to do so. If the current crisis leaves such a large volume of bad bank debt, it would be under no legal obligation to repay all of this debt at 100 cents on the dollar (presumably it would make owners of subordinated debt take the first hit).
Unlike many news organizations, the Prospect has remained staunchly committed to keeping our journalism free and accessible to all. We believe that independent journalism is crucial for a functioning democracy—but quality reporting comes at a cost.
This year, we’re aiming to raise $75,000 to continue delivering the hard-hitting investigative journalism you’ve come to expect from us. Your support helps us maintain our independence and dig deeper into the stories that matter most.
If you value our reporting, please consider making a contribution today. Any amount helps secure our future and ensure we can continue holding power to account.
