Bank CDS and a Strip-Club Hedge Fund

Popular and CDS.

Banks and regulators care a lot about the nuances of banks' capital structures. Banks have insured deposits, and secured debt, and senior unsecured bank debt, and senior unsecured holding company debt, and Tier 2 capital securities, and Additional Tier 1 capital securities, and common stock, and other stuff, and the exact hierarchies of when and how those securities get paid matter a lot for regulatory and bank-viability purposes. And when a bank needs rescuing, holders of its most senior stuff -- the deposits, the secured debt -- tend to be fully and seamlessly made whole, while holders of its most junior stuff -- common stock, AT1 capital securities -- tend to get instantaneously zeroed. (In theory, some security in the middle might get like a 40 percent haircut, but in practice the recent rescues seem to be neatly all-or-nothing.)