All lessonsCrisis Architecture & The Global Dollar
Who Pays When a Bank Fails
Shareholders first, then bondholders, then — if the rules hold — nobody else.
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Put these in order
A bank fails. Who absorbs the loss, and in what order?
Earliest cause at the top
Shareholders
They own the upside, so they take the downside first
Subordinated bondholders
Paid only after senior creditors, and priced for it
Uninsured depositors
Balances above the guarantee limit
Senior unsecured bondholders
Traditionally assumed safe, no longer
Additional tier 1 holders
Bonds designed to convert or be written off under stress
Insured depositors — protected, and paid by the guarantee scheme
In principle they never lose
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