Two major US banks, Silicon Valley Bank and Signature Bank, went bankrupt. Swiss bank Credit Suisse reached the brink of collapse. In the last two weeks, there has been a tsunami in the banking sector of America and Europe. The concern of investors around the world has increased.
They are scared that what will happen if this happens to their bank. The people of India have also gone through such a situation. Yes Bank had reached the brink of collapse a few years ago. The bank was saved because of the government and RBI.
But people were worried about their money being deposited in the bank. Questions are arising in the minds of the people how do such big banks become bankrupt? What does bank failure mean? How does the bank get closed overnight? If a bank closes, what will happen to the money lying in the bank account? Lets see answers to these pertinent qestions.
Collapsing of the bank means if a bank reaches such a situation that the regulator had to take a decision to close it, then it is called bank failure. In case of bankruptcy of the bank, the regulator takes a decision to close it in the interest of the account holders and investors. After the central bank of any country, it has the right that it can decide to close the bank. The regulator takes this decision when it sees that the bank is not able to meet the needs of its customers and investors and its continuation can be dangerous for the account holders of the bank, then taking the final decision, it decides to close it.