Bank Failures
Definition
Bank failures occur when a bank is unable to meet its obligations to its depositors or other creditors because it has become insolvent or too illiquid to meet its liabilities.
Analogy
Imagine you're at a pizza party where the host promises everyone will get at least two slices. But if more people show up than expected and there's not enough pizza (money) for everyone, the party (bank) fails to deliver on its promise.
Related terms
Bank Run: A situation in which many customers withdraw their money from a bank simultaneously, fearing that the institution will become insolvent.
FDIC (Federal Deposit Insurance Corporation): A U.S. government corporation providing deposit insurance guaranteeing the safety of depositor's accounts in member banks up to $250,000 per account.
Insolvency: The state of being unable to pay debts owed.
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