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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: Madharry who wrote (69548)	1/15/2022 11:02:10 AM
From: E_K_S	1 Recommendation Recommended By Lance Bredvold Respond to of 78959

From what I read this 'Bail-in' will only apply to those very large accounts (ie operating subsidiaries that are set up by the banks and/or insurance companies as an example) where some of these leveraged 'worthless' assets are housed. That said, it is complicated and there is no real formula as to who/what is in top position to be liquidated. I believe any investor (in a brokerage firm) and/or holder of an account in a Credit Union are covered by the FDIC insurance up to $250K, NCUA insurance for Credit Unions and/or SIPC insurance up to $500K for brokerage accounts. --------------------------------------------------- There may/could be possible comingling of brokerage assets specifically in a margin account where the account holder 'hypothecates' their shares to the broker, the broker uses these shares as collateral and may hypothecate their interest to a subsidiary company and/or 3rd party clearing house. If one or more of those 3rd parties and/or subsidiary companies becomes a 'bail-in' candidate are all those hypothecated assets at risk? Maybe. What can the individual investor do? I have several broker accounts ALL are 'CASH' accounts except one that I maintain as a margin account where I keep very few stocks (used mainly to sell covered calls). IRA/ROTH accounts by definition are Cash accounts. As long as balances are under $500K should be covered by SIPC insurance AND if stocks held in your CASH account are not subject to 'hypothecation'. Balances over those amounts (especially cash) are backed by the Broker's balance sheet assets and more importantly held in the 'Cash' account may not be caught up in this hypothecation trap (ie comingling). I also keep cash in the local Credit Union covered by the NCUA and I believe if held in a truest (ie. I use a Family Trust) covers up to $500K) Your assets (especially held w/ your Broker) are only as safe as your Broker's financials. Schwab had very bad financial in 2009 but those have improved significantly last time I checked. --------------------------------------------------------- I believe the purpose of the new 'Bail-In' legislation was to make these 'Too Big To Fail' banks responsible for the creditworthiness of the assets they hold and their other derivative products they may own/use in their financial accounting. It's the latter that may/could 'blow up' and cascade into a 'bail-in' serrano for that financial institution. You raise a very good question about much larger corporate accounts including payroll and wire transfers done in the course of their business. Worst case I see is accounts are 'frozen' until everything is all worked out. That may/could be days/weeks or even months and I suspect those w/ the best lawyers will be the winners. It was 2009 where we tested the Financial System and the only thing that worked was the 'Bail Out' and that took an Act Of Congress to implement. Not sure a 'Bail In' will work any better.