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How can a financial institution have a negative capital position? I'm not clear on how that looks.
ReplyDeleteI wasn't kidding. I am seriously unclear about what a balance sheet must look like in order to generate a negative capital position. Can you explain?
ReplyDeleteJeffry:
ReplyDeleteYou asked how a financial institution could report a negative capital position.
This condition would arise if the assets were less than the liabilities of the institution. In the case of WesCorp, this appeared as a negative retained earnings account.
The very same problem can also be seen with Corus Bank where losses have essentially wiped out all the shareholders' equity in the bank and reduced the institution to "zombie" status.
ReplyDeleteUnfortunately, this type of problem is more not even limited to a handful of banks as current estimates have over 416 banks on the FDIC's troubled list.