2016-FRR Exam Dumps | What is the order in which creditors and shareholders get repaid in the event of a bank liquidation?

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GARP.2016-FRR.v2024-09-09.q145
Question 58

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Question 58/145

What is the order in which creditors and shareholders get repaid in the event of a bank liquidation?

A. Depositors, shareholders, debt holders.

B. Debt holders, depositors, shareholders.

C. Depositors, debt holders, shareholders.

D. Depositors, shareholders, depositors.

Correct Answer: C

In the event of a bank liquidation, the order of repayment is as follows:
* Depositors: They are given priority as they are often covered by deposit insurance schemes to maintain confidence in the banking system.
* Debt Holders: After depositors, holders of the bank's debt are repaid. This includes both secured and unsecured creditors, with secured creditors having a higher claim.
* Shareholders: They are last in line to receive any remaining funds after all other obligations have been satisfied. Common shareholders are the last to be paid, after preferred shareholders.
This hierarchy ensures that the most senior and secured claims are addressed first, providing a structured approach to liquidation.References: How Finance Works, discussions on bank liquidation processes and the hierarchy of claims.

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