§ 6505 Capital Certificates Issuance Rules

Key Takeaways

•Banks can sell special certificates to raise money. These certificates are like loans to the bank but don’t let the buyer vote on bank decisions.
•If the bank goes broke, the people who bought these certificates get paid only after everyone else (like savers and other people the bank owes money to) gets paid first.
•The certificates can earn interest or a share of the bank’s profits, but only after the bank has set aside money for reserves.
•If the bank loses money, these certificates lose value only after all other bank money is gone.

Example

Imagine you buy a special certificate from your local bank to help them grow. The bank promises to pay you interest every year.

If the bank does well, you get your interest. But if the bank fails, you only get your money back after all the regular customers and other people the bank owes money to are paid first. If there’s no money left after that, you might not get anything.

(a) An association may issue and sell, directly or through underwriters, capital certificates that represent nonwithdrawable capital contributions, and constitute part of the reserves and statutory net worth of the association. The certificates shall have no voting rights and shall be subordinate to all savings accounts, debt obligations, and claims of creditors of the association. The certificates shall constitute a claim in liquidation against any reserves, surplus, and other statutory net worth accounts remaining after the payment in full of all savings accounts, debt obligations, and claims of creditors. The capital certificates shall be entitled to the payment of interest prior to the allocation of any income to surplus or other statutory net worth accounts of the association and may be issued with a fixed rate of interest or with a prior claim to distribution of a specified percentage of any net income remaining after required allocations to reserves, or a combination of those features. Losses may be charged against capital certificates only after reserves, surplus, and other statutory net worth accounts have been exhausted. (b) To the extent permitted by its articles of incorporation, an association authorized to issue capital stock may provide for the conversion of capital certificates into common stock. (Repealed and added by Stats. 1983, Ch. 1091, Sec. 2.)

Key Takeaways

•Banks can sell special certificates to raise money. These certificates are like loans to the bank but don’t let the buyer vote on bank decisions.
•If the bank goes broke, the people who bought these certificates get paid only after everyone else (like savers and other people the bank owes money to) gets paid first.
•The certificates can earn interest or a share of the bank’s profits, but only after the bank has set aside money for reserves.
•If the bank loses money, these certificates lose value only after all other bank money is gone.

Example

Imagine you buy a special certificate from your local bank to help them grow. The bank promises to pay you interest every year.

Key Takeaways

Example

Key Terms

References

§ 6505 Capital Certificates Issuance Rules

Key Takeaways

Example

Key Terms

References

Key Takeaways

Example

Key Terms

Related Statutes

References

Key Takeaways

Example

Key Terms

Related Statutes

References