Bank insolvency occurs when a bank is unable to meet its financial obligations to depositors and other creditors. It can happen when a bank runs out of money, and is unable to pay back its debts. Insolvency can also happen when a bank fails to meet its capital requirements or faces a liquidity crisis. In this situation, the bank may be forced to close its doors, liquidate its assets, and distribute the proceeds to creditors.

Creditors in a bank insolvency situation can face significant losses. Depending on how the insolvency is handled, creditors may not receive all of the money they are owed or may receive only a portion of what they are owed. Creditors may also face delays in receiving payments, as the insolvency process can take some time to resolve. Additionally, if the insolvency is handled under bankruptcy law, creditors may not be able to pursue legal action against the bank or its assets.

In the event of bank insolvency, bank account holders should first contact the bank directly and inquire about any available options. The bank may provide assistance in obtaining access to funds, transferring funds to another bank, or other possible solutions. When financial challenges threaten the stability of the institution, statutory administration may be imposed by the local regulator.

Account balances of eligible creditors are protected up to the insured amount. This amount varies per jurisdiction and protection is limited to registered, licensed and supervised deposit taking credit institutions. This means that no deposit insurance protection applies to investment firms, FinTech’s and other such institutions. Most regulators around the world publish an exhaustive list of participants in their respective deposit protection schemes on their official websites. Our tailor-made website on deposit guarantee claims provides more information on global bank deposit protection.