 |
The examples and perspective in this article deal primarily with the United States and do not represent a worldwide view of the subject. Please improve this article and discuss the issue on the talk page. |
A bank failure occurs when a bank is unable to meet its obligations to its depositors or other creditors.[1] More specifically, a bank fails economically when the market value of its assets declines to a value that is less than the market value of its liabilities. As such, the bank is unable to fulfill the demands of all of its depositors on time. Also, a bank may be taken over by the regulating government agency if Shareholders Equity (i.e. capital ratios) are below the regulatory minimum.
The failure of a bank is generally considered to be of more importance than the failure of other types of business firms because of the interconnectedness of banking institutions. It is often feared that the effects of a failure of one bank can quickly spread throughout the economy and possibly result in the failure of other banks, whether or not those banks were solvent at the time. As a result, banking institutions are typically subjected to rigorous regulation, and bank failures are of major public policy concern in countries across the world.[2]
In the United States, deposits in savings and checking accounts are backed by the FDIC. Currently, each account owner is insured up to $250,000 in the event of a bank failure. This will revert to $100,000 in 2014.[3] When a bank fails, in addition to insuring the deposits, the FDIC acts as the receiver of the failed bank, taking control of the bank's assets and deciding how to settle its debts. No advanced notice is given to the public when a bank fails. [4] This can happen seamlessly, without consumers losing access to their funds, as it did in the 2008 failure of Washington Mutual in which the FDIC brokered a deal in which JP Morgan Chase bought the assets of Washington Mutual for $1.9 billion.[5] Existing customers were immediately turned into JP Morgan Chase customers, without disruption in their ability to use their ATM cards or do banking at branches.[6]
See also
- List of acquired or bankrupt United States banks in the late 2000s financial crisis
- 2008-2009 bank failures in the United States
- List of largest U.S. bank failures
Notes
- ^ "When a Bank Fails - Facts for Depositors, Creditors, and Borrowers". FDIC. 2008-10-03. http://www.fdic.gov/consumers/banking/facts/. Retrieved 2008-12-21.
- ^ "Bank Failures, Systemic Risk, and Bank Regulation". The Cato Institute. Spring 1996. http://www.cato.org/pubs/journal/cj16n1-2.html. Retrieved 2008-12-21.
- ^ "Deposit Insurance Simplification Fact Sheet". FDIC. http://www.fdic.gov/deposit/deposits/DIfactsheet.html. Retrieved 29 September 2009.
- ^ "When a Bank Fails". FDIC. Fall 2008. http://www.fdic.gov/consumers/banking/facts/index.html. Retrieved 2009-02-06.
- ^ "JPMorgan Chase to Buy Washington Mutual". Business Week. September 26, 2008. http://www.businessweek.com/bwdaily/dnflash/content/sep2008/db20080925_760466.htm. Retrieved 2009-02-06.
- ^ "OTS 08-046 - Washington Mutual Acquired by JPMorgan Chase". Office of Thrift Supervision. September 25, 2008. http://www.ots.treas.gov/?p=PressReleases&ContentRecord_id=9c306c81-1e0b-8562-eb0c-fed5429a3a56. Retrieved 2009-02-06.
External links
This entry is from Wikipedia, the leading user-contributed encyclopedia. It may not have been reviewed by professional editors (see full disclaimer)
