Bank failure is when a bank is unable to meet its financial obligations and can no longer continue operating. This can happen for a variety of reasons, including mismanagement, fraud, or a lack of liquidity. When a bank fails, it is typically liquidated and its assets are used to pay off its creditors.
The procedure for recovering money from a failed bank depends on the country and the jurisdiction in which the bank was located. More and detailed information is available in the article an Introduction to Bank Liquidation. Generally, when a bank fails, customers will have to file a claim with the bank’s liquidator. The liquidator will review the claim and determine how much the customer is owed. If the customer is owed money, they will then receive payment from the liquidator.
When a bank fails, creditors are placed in a hierarchy based on their level of risk. The creditor hierarchy is designed to determine who gets paid first and who gets paid last. Generally, banks are required to pay off the most secure creditors first, followed by less secure creditors. Bank account holders typically fall at the bottom of the creditor hierarchy and are often times the last to receive payment when a bank fails.
Unfortunately, bank account holders may not always get their money back when a bank fails. This is because many banks have limited funds and may not be able to pay all of their creditors. In some cases, the amount owed to the bank account holder may be less than the amount owed to other creditors, meaning that the bank account holder may not receive any payment at all.
It is important for bank account holders to understand the risks associated with banking with a particular bank. While it is always best to be proactive and monitor the health of a bank, if a bank does fail, it is important to understand the creditor hierarchy and the risks associated with not getting all or some of their money back.