Should another financial crisis befall us, rendering a number of Too-Big-To-Fail banks insolvent, the good news is that taxpayers will no longer be forced to bail them out.
The bad news is that these large Wall Street banks can now legally bail themselves out internally (referred to as “bail-ins’) using depositor funds.
Thanks to Dodd-Frank, if you happen to hold your money in a savings or checking account at a bank, and if that bank collapses, it can legally freeze and confiscate your funds for purposes of maintaining its solvency.
So instead of relying on government funds (taxpayer money) to save itself from going bankrupt, a bank can simply dip into your deposit accounts to stabilize itself.
To compensate you, the bank will exchange your money for its equivalent value in company shares.
In other words, if a bank fails, it takes your money and hands you an equivalent amount of shares in its failing operation. Ethical? No. Legal? Yes.