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A failed bank’s liabilities always outstrip its assets
But accounting though, no? Assets = liabilities + equity.
If the share price is zero, the assets equal the liabilities.[Edit] actually, that's complete bollocks. Equity does not necessarily reflect share price (other than at origination, I guess).
NotThamesWater-
A failed bank is one that can't meet its liabilities. Doesn't mean its assets are zero - they may not be liquid (tradeable in short term) enough. And so shares aren't necessarily worthless.
Look at RBS, shares fell a lot further after government purchase (yes they were overpriced due to disastrous acquisitions). Still held billions in mortgages.
Compare company insolvency, wind-up and sale due to cash flow problems.
Also, those calling for retail banks to be allowed to fail surely don't understand what that would mean to them personally.
Perhaps start here: https://en.m.wikipedia.org/wiki/Nationalisation_of_Northern_Rock
Government didn't guarantee bank deposits until then.
chez_jay
Yeah, they shouldn’t. They certainly don’t want to. In 2008 we are told the alternative was worse.
If a significant bank fails there are no liquid or semi liquid assets, at all. None. A failed bank’s liabilities always outstrip its assets, thanks to gearing.
Any existing shares were pretty much valueless at the point where the bank is prevented from failing, so what you are suggesting mostly happens anyway, except the state takes on only liabilities.