Скачать или смотреть 7 Steps to Understanding How Banks Fail

Discover the 7 stages of a bank failure and what they mean for you as a depositor. In this video, we explain: What does it mean when a bank fails? How do banks operate? How can they fail? What happens to depositors’ money? and whether banking is still safe today.

Whether you’re curious about financial crises, concerned about your savings, or simply want to understand how the banking system works, this breakdown will give you clear answers.

We’ll cover:

How banks operate and make money

The warning signs of a possible failure

What happens when a bank officially fails

The potential scenarios for depositors and investors

If your money is safe in today’s banking system

0:00 What Does It Mean When a Bank Fails?
0:38 How Does a Bank Operate?
1:44 How Can a Bank Fail?
3:16 What Happens When a Bank Fails?
3:52 What Are the Possible Scenarios After a Bank Fails?
5:19 What Happens to Depositors' Money?
6:03 Is Banking Still Safe?

To read:

What Does It Mean When a Bank Fails?
A bank failure occurs when it can no longer meet its obligations to depositors or creditors, meaning it lacks enough liquid assets to pay customers or lenders on demand. When withdrawal requests exceed available liquidity, the bank is declared insolvent.

How Does a Bank Operate?
Banks don’t keep all deposits in cash. They hold a small reserve—often no more than 10%—and lend the rest to individuals or businesses through mortgages, car loans, or business financing. Profit comes from the interest rate gap (e.g., paying 2% to depositors while charging 7% to borrowers) and from investments in assets like bonds, stocks, or mutual funds.

How Can a Bank Fail?

Investment Losses – Risky investments in subprime mortgages, volatile stocks, or low-grade bonds can cause heavy losses. If these exceed reserves, asset values fall and insolvency follows, as in the 2008 crisis.

Bank Run – Rumors of trouble can trigger mass withdrawals. Since banks hold limited cash, they can’t meet all demands at once, leading to a rapid collapse.

Decline in Asset Value – Market downturns, defaults on loans, or falling property values can reduce asset worth below liabilities, forcing sales at a loss.

What Happens When a Bank Fails?

Declaration of Insolvency – Regulators announce the bank’s inability to operate and revoke or suspend its license.

Freezing Operations – Withdrawals and transfers are halted while authorities assess the situation.

Possible Outcomes After Failure:

Bailout – Government or central bank provides emergency funding or takes temporary control to prevent wider economic harm.

Merger – A stronger bank absorbs the failing one’s assets and liabilities, often with new management.

Liquidation – Assets are sold, and proceeds are used to repay creditors first, then depositors. Some depositors may not recover all funds.

What Happens to Depositors’ Money?
Most countries have deposit insurance guaranteeing funds up to a set limit (e.g., $250,000). If a customer has $1 million, they recover $250,000 from insurance; the rest depends on asset liquidation results.

The Role of Deposit Insurance
Deposit insurance reassures customers and helps prevent panic. Limits and rules vary by country and account type, so knowing them is key to protecting savings.

Is Banking Still Safe?
Banking remains one of the safest ways to manage money due to strict regulations, capital requirements, and regular stress testing. To reduce risk:

Use reputable banks.

Keep balances within insured limits.

Spread funds across accounts or banks when necessary.

Being informed and cautious helps safeguard against the rare risk of bank failure.