Net-Worth Certificate

DEFINITION of 'Net-Worth Certificate'

An instrument used by the FDIC starting in 1982 as part of an effort to save failing banks and thrifts by providing capital. When deposit-rate restrictions that had existed for decades were lifted, banks and thrifts found themselves having to pay out more in interest on deposits than they were earning from their long-term investments, such as 30-year fixed-rate mortgages and government bonds. Net-worth certificates gave the banks and thrifts time to resolve their problems.

BREAKING DOWN 'Net-Worth Certificate'

During the 2008 financial crisis, some people, including former FDIC chairman William Isaac, suggested reintroducing net-worth certificates to rescue struggling banks while using minimal government intervention.

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