A bank failure of a bank is an actual inability to pay of a bank. With the term bank failure is meant not an insolvency procedure, but the condition of the insolvency. In relation to a "“normal"” insolvency there are clear differences with a bank failure:

• The inability to pay of the bank is so well always in insolvency justified.
  • If the bank would be insolvent, but not insolvent, then it could acquire cash and other currencies in the context of the insert business opposite the issuing bank easily, if the issuing bank were ready to accept the proofs of indebtness of the bank against the bank as werthaltig and to buy therefore these proofs of indebtness against money. The issuing bank is not ready for such a refinancing in all rule only if the bank is insolvent.
• There are amazingly many banks, which are insolvent, however in a formal insolvency procedure is not. The reasons for the fact lie above all in the fact that this is politically intended, since because of the confidence suffering from it into the bank system down mentioned disbursement wave is feared. (This occurred in history frequently.)
• A bank failure often releases a collapse of the insert business of a larger number of banks in the form that customers with assets try with their bank fast to take off this assets since these customers lost the confidence into the bank system by a bank failure even if this bank (at first) not from a bank failure are concerned. If this bank is now likewise insolvent, then it becomes likewise insolvent and is subject thus even to a bank failure. In this way a bank failure wave can spread over a whole national economy. (This likewise occurred in history frequently.)

A frequent measure with bank failure waves are bank holidays, thus the official locking of all branch banks on days, which are actually considered as a bank working day. This measure will then be driven met, if a larger number of banks is insolvent and thus the bank system would not bear a complete taking of nearly all assets, thus all the banks off, which are insolvent, also actually into the bank failure. It can happen however that straight attains full growth itself only thereby a local bank failure to a country-wide bank failure, because by bank holidays also all other banks are actually insolvent.

Today one tries to reduce Bankenpleiten by insert contingency funds which obligate other banks to the support of the insolvent banks in the regard that the insert contingency fund takes over the disbursement of the inserts. However this system of the insert safety device functions only, if only very few banks are insolvent and not, as in many historical cases, a larger number of banks.

See also

• Financial scandal
• Bank run

Historical examples

• 13. July 1931 Danat bank in Germany with following bank holidays
  • Switch tower by bank crash

Articles in category "Bank failure"

We found here 21 articles.

Related Websites

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