What happens when a bank goes belly up is that the FDIC covers the amounts under the max. Then they sell the assets to another bank—its more like its assigned—and they take over the good stuff and the bad loans and what not are liquidated.
So, the total amount the FDIC is on the hook for would not be the complete capitalization of the bank.
Thats the plan.
What is not in “the plan” is multiple LARGE failures at one time. You are correct. If more than one large bank goes under at once, we are screwed.
Yes. We are dealing with the herd mentality here. Once the illusion of confidence is broken, anything is possible.