Imagine waking up one morning and hearing:
“A bank with billions of dollars in assets has failed.”
The first question that probably comes to mind is:
How is that even possible?
If a bank owns billions of dollars worth of loans, bonds, buildings, cash, and other assets, shouldn't it have plenty of money?
Not necessarily.
And this is one of the most important things to understand about banking.
A bank can have billions of dollars in assets and still fail because having valuable assets is not the same thing as having enough cash and liquidity at the exact moment customers demand it.
There is another problem too.
An asset may be worth billions on paper, but its market value can fall. And if a bank is forced to sell that asset quickly, it may have to accept a large loss.
This is how a bank that looked enormous and successful can suddenly find itself in serious trouble.
The collapse of Silicon Valley Bank in March 2023 provided one of the clearest modern examples. At the end of 2022, SVB had approximately $209 billion in assets, yet it failed after rising interest rates reduced the value of its securities, confidence deteriorated, and depositors rapidly withdrew funds. The FDIC reported that approximately $42 billion in deposits left the bank in a single day, with another $100 billion scheduled for withdrawal.
So how can billions of dollars in assets fail to save a bank?
Let's make it simple.
First, What Does a Bank Actually Own?
When you think about a bank, you might picture:
Your checking account
Your savings account
The money in the vault
But that's only one part of the institution.
A bank's assets can include:
- Loans to customers
- Mortgages
- Business loans
- Government securities
- Corporate bonds
- Cash
- Reserve balances
- Real estate
- Other financial assets
These assets are things that can potentially generate money for the bank.
For example, a mortgage is an asset because the borrower is expected to make payments to the bank.
A Treasury security is an asset because it represents a financial claim that pays according to its terms.
Cash is an asset because it can be used immediately.
But here's the critical point:
Not all assets are equally easy to turn into cash.
That difference can determine whether a bank survives a crisis.
Assets and Cash Are Not the Same Thing
Imagine you own:
A house worth $500,000
and:
$1,000 in your checking account.
Technically, you might be worth more than $500,000.
But if someone tells you:
“You need to pay me $50,000 this afternoon.”
your house doesn't suddenly become $50,000 of cash.
You need to sell it or borrow against it.
And that takes time.
A bank faces the same basic problem—except on a vastly larger scale.
A bank might own billions of dollars in long-term loans and securities.
But customers may want their deposits today.
That's the difference between:
solvency
and
liquidity.
What Is Solvency?
A bank is broadly solvent when the value of its assets is sufficient to cover its liabilities, taking into account the relevant accounting and regulatory framework.
A simplified example:
Assets = $110 billion
Liabilities = $100 billion
Equity = $10 billion
The bank has a positive capital cushion.
But that doesn't necessarily mean it can handle a sudden rush of withdrawals.
Its $110 billion of assets could include large amounts of loans that won't be repaid for years.
That's where liquidity enters the picture.
What Is Liquidity?
Liquidity is about how easily an asset can be converted into cash without a major loss in value.
Cash is extremely liquid.
A highly traded government security can also be relatively liquid.
A long-term loan to a business may be much less liquid.
A commercial property can be even harder to sell quickly.
So a bank might have:
$100 billion in assets
but only:
$10 billion available in immediately accessible liquidity
If customers suddenly demand:
$20 billion
the bank has a problem.
It may need to raise additional funds or sell assets.
And that's where things can get dangerous.
The Difference Between Solvency and Liquidity
Here's the easiest way to remember it:
Solvency asks:
“Does the bank have enough value to cover what it owes?”
Liquidity asks:
“Can the bank get enough cash when it needs it?”
A bank can have problems with one, the other, or both.
And a liquidity crisis can eventually become a solvency crisis.
That's what makes bank runs so dangerous.
Let's Build a Simple Bank
Imagine a fictional bank called:
Community First Bank
It has:
Assets
$50 million in mortgages
$30 million in Treasury securities
$10 million in business loans
$10 million in cash and reserves
Total assets = $100 million
Now suppose customers have:
Liabilities
$85 million in deposits
$5 million in other liabilities
And the bank has:
Equity
$10 million
The balance sheet works:
$100 million assets
=
$90 million liabilities
$10 million equity
Everything looks fine.
Until customers start asking for their money.
What If Customers Withdraw $20 Million?
The bank has only:
$10 million in cash and reserves
So it needs another:
$10 million
It could potentially sell securities.
Suppose its Treasury securities are currently worth:
$30 million
That sounds good.
The bank can sell $10 million of them.
Problem solved.
But what if the market has moved against the bank?
What if those securities are now worth only:
$25 million
on the market?
The bank can still sell them.
But it realizes a loss compared with what it originally paid.
Now imagine the situation becomes even more extreme.
The bank needs cash quickly.
Buyers know the bank is desperate to sell.
The bank may have to accept unfavorable prices.
This is where liquidity pressure can turn into financial losses.
Why Interest Rates Can Cause Problems for Banks
This is where our earlier article on bond prices becomes important.
Remember:
When market interest rates rise, existing fixed-rate bond prices generally fall.
Banks can own large quantities of bonds.
Suppose a bank buys:
$10 billion of long-term bonds
when interest rates are low.
Then market rates rise sharply.
The market value of those bonds falls.
The bank still owns the bonds.
The issuer may still owe the principal at maturity.
But the securities are now worth less if sold today.
The FDIC identified exactly this vulnerability in the 2023 bank failures: rising rates reduced the market value of long-duration securities held by affected banks.
What Happened at Silicon Valley Bank?
SVB provides a particularly useful case study.
At year-end 2022, SVB had approximately:
$209 billion in assets
and about:
$191.4 billion in deposit liabilities.
A substantial portion of its assets was invested in longer-duration securities.
As interest rates increased, the market value of those securities declined.
That created unrealized losses.
Unrealized means:
The bank hadn't necessarily lost that amount in cash yet.
The problem became much more serious when the bank needed liquidity.
SVB announced in March 2023 that it had sold securities at a substantial loss and sought to raise capital.
The announcement damaged confidence.
Then depositors rushed to withdraw their money.
The FDIC reported that approximately $42 billion in deposits were withdrawn on March 9 alone.
That was enough to overwhelm the bank.
California regulators closed SVB on March 10, 2023, and appointed the FDIC as receiver.
The lesson is powerful:
The bank didn't need to have zero assets to fail. It needed to lose access to sufficient liquidity while confidence was collapsing.
What Is an Unrealized Loss?
This sounds complicated, but it isn't.
Imagine you buy a bond for:
$1,000
Later, its market value falls to:
$800
You have an:
$200 unrealized loss
because you haven't sold it.
If you continue holding it and the bond eventually pays according to its terms, the outcome can differ from the temporary market price.
But if you need cash immediately and sell that bond for $800, the $200 loss becomes realized.
This distinction can matter enormously to banks.
Why Selling Assets at the Wrong Time Can Be Dangerous
Let's return to our fictional bank.
It owns:
$30 million in bonds
but those bonds have fallen to:
$25 million in market value.
The bank doesn't necessarily have to sell them.
If it can retain stable funding and hold the securities as they mature, the situation may be manageable, depending on the assets and the accounting and capital framework.
But now imagine:
Depositors demand $20 million.
The bank doesn't have enough cash.
It has to raise money.
It sells the bonds.
Now the losses become real.
Its capital falls.
Customers hear about the losses.
More customers withdraw.
The situation can become self-reinforcing.
The Bank Run
This is the nightmare scenario.
A bank run happens when a large number of depositors try to withdraw their money at roughly the same time because they are worried about the bank.
It creates a paradox.
The bank may have a large amount of valuable assets.
But it doesn't necessarily have enough immediately available cash.
And the more people withdraw, the more assets the bank may need to sell.
That can create further losses.
The FDIC identified heavy reliance on uninsured deposits as one of the vulnerabilities shared by several large regional banks that failed in 2023.
Why Fear Can Become Self-Fulfilling
Imagine you're a depositor.
You hear:
"People are withdrawing money from Bank X."
You think:
"Maybe I should get my money out too."
Thousands of other customers have exactly the same thought.
Everyone rushes to withdraw.
The bank now has an enormous liquidity requirement.
Even if the initial concern was relatively small, the collective reaction can make the situation much worse.
That's the dangerous psychology of a bank run.
Social Media Can Make Bank Runs Faster
Bank runs used to require people to physically stand in line outside a bank.
Not anymore.
A customer can move money digitally in seconds.
And information can spread through:
Text messages
Social media
News websites
Online banking groups
This can accelerate withdrawals dramatically.
The FDIC specifically noted that the concentrated and connected depositor base at SVB helped the run spread quickly through social media and other channels.
The technology changed.
The underlying banking problem did not.
Why Uninsured Deposits Matter
In the United States, the FDIC currently provides standard deposit insurance of up to:
$250,000 per depositor, per insured bank, per ownership category.
This is important because deposits above the applicable insurance limits can have different treatment in a bank failure.
A customer with:
$20,000
in an insured deposit account has very different exposure from a company with:
$20 million
in uninsured deposits at the same bank.
This difference became particularly important during the 2023 regional-bank failures.
SVB had an unusually high percentage of uninsured deposits, making withdrawals particularly damaging when confidence disappeared. The FDIC reported that more than 90% of SVB's deposits were uninsured.
Does Deposit Insurance Mean Banks Can't Fail?
No.
Banks can still fail.
Deposit insurance is designed to protect eligible depositors within applicable limits and help maintain confidence in the banking system.
The FDIC has two important roles when an insured bank fails:
insurer of eligible deposits
and
receiver responsible for resolving the failed bank.
The FDIC generally seeks to arrange a sale to a healthy bank or otherwise resolve the institution while minimizing costs to the Deposit Insurance Fund.
So a bank failure doesn't necessarily mean ordinary depositors instantly lose everything.
The rules depend on the country, account type, insurance coverage, and resolution.
What Happens When a Bank Fails?
In the United States, the FDIC may arrange for another healthy bank to acquire the failed bank's deposits and some or all of its assets.
Alternatively, the FDIC can pay insured depositors directly up to the applicable insurance limit.
For uninsured funds, recovery can depend on what happens to the failed bank's remaining assets and the claims against them.
The important lesson is:
A bank failure is a legal and financial resolution process, not simply the bank locking its doors and all money disappearing.
Why Banks Don't Keep All Deposits in Cash
You may be thinking:
“If banks know customers can withdraw their money, why don't they just keep all deposits in cash?”
Because that would destroy much of the economic purpose of banking.
Imagine a bank receives:
$1 billion in deposits.
If it kept the full $1 billion sitting in cash, it would have very limited ability to earn income from lending or securities.
Banks therefore use their balance sheets to:
Make loans
Hold securities
Provide payments
Manage liquidity
Support economic activity
The challenge is finding the right balance between:
Profitability
and
Liquidity
and
Capital
and
Risk management.
That's the banking business.
Why Banks Are Built Around Maturity Mismatch
Here's another important concept.
Deposits can often be withdrawn relatively quickly.
But bank assets may be long-term.
For example:
Customer deposit: available on demand
Mortgage: may be outstanding for 30 years
This difference is sometimes described as maturity transformation.
The bank effectively transforms short-term funding into longer-term lending.
That is economically useful.
People can keep money accessible while businesses and households can obtain long-term financing.
But the structure creates risk.
If everyone wants the short-term money back at the same time, the bank cannot instantly turn all of its long-term assets into cash without potentially taking losses.
Why This Doesn't Mean Banking Is a Scam
It's simply the business model.
A bank provides something valuable:
liquidity
to customers while simultaneously providing:
long-term financing
to borrowers.
A customer can keep money accessible.
Another customer can obtain a 30-year mortgage.
The bank sits between them.
Without this system, economic activity would be much more difficult to finance.
The risk comes from managing the gap between those different time horizons.
Why Banks Need Capital
Capital provides a cushion when things go wrong.
Imagine:
Assets = $100 billion
Liabilities = $90 billion
Capital = $10 billion
If assets fall in value by:
$5 billion
the bank still has:
$5 billion of capital
remaining, all else equal.
But if assets decline by:
$15 billion
the original capital cushion would be wiped out.
That doesn't necessarily mean the exact accounting treatment works this simply in real banks, but it provides the intuition.
Capital absorbs losses.
The larger the capital cushion, the more losses a bank can potentially absorb before becoming insolvent.
Why Capital and Liquidity Are Both Necessary
A bank can have:
Strong capital
but
weak liquidity.
Or:
Strong liquidity
but
insufficient capital.
Ideally, it needs both.
Think of it like a household.
You could own a valuable house.
That's wealth.
But you also need enough cash to pay tomorrow's bills.
A bank has the same basic problem at a much larger and more complicated scale.
A Simple Example: Rich but Cash-Poor
Imagine you own:
$1 million home
$200,000 business
$50,000 in investments
$5,000 cash
Your total assets might be worth:
$1.255 million
But you receive a bill for:
$30,000 tomorrow.
You can be wealthy on paper and still have a liquidity problem.
You might have to:
Sell the investments
Borrow money
Sell part of the business
or
borrow against the house
A bank faces similar problems.
The difference is that a bank can have thousands or millions of customers making claims against its balance sheet.
Why a Bank's Asset Quality Matters
Not all assets are equally safe.
Imagine a bank has:
$100 million in Treasury securities
versus another bank with:
$100 million in risky business loans.
They both technically have $100 million of assets.
But the risk profile is completely different.
The business borrowers might default.
The Treasury securities have different risks, such as interest-rate and liquidity risk.
This is why investors look at a bank's:
Loan quality
Securities portfolio
Credit concentration
Capital
Liquidity
not simply the total asset figure.
Why Diversification Matters
Imagine a bank lends heavily to one industry.
For example:
80% of loans go to commercial real estate.
If that industry experiences a severe downturn, the bank can suffer enormous losses.
A diversified bank might have exposure across:
Mortgages
Small businesses
Credit cards
Industrial companies
Government securities
Consumer loans
Diversification doesn't eliminate risk.
It simply reduces dependence on one particular source of risk.
Why a Growing Bank Can Actually Become More Vulnerable
You might think:
"A rapidly growing bank must be healthy."
Not necessarily.
Rapid growth can hide problems.
The FDIC found that the banks involved in the 2023 regional-bank failures had grown quickly, while some had substantial concentrations of uninsured deposits and significant unrealized losses on securities or low-yield loan portfolios relative to capital.
Fast growth can create pressure on:
Risk management
Staffing
Liquidity planning
Loan underwriting
Capital
Technology
A bank can therefore become more vulnerable precisely while its balance sheet is getting larger.
Why Interest-Rate Risk Matters So Much
Let's say a bank buys:
$10 billion of long-term fixed-rate securities
while rates are very low.
Then rates rise sharply.
The market value of those securities falls.
At the same time, customers may demand higher deposit rates because they can earn more elsewhere.
The bank now faces pressure from both directions:
Asset values ↓
and potentially:
Funding costs ↑
That's a difficult combination.
The FDIC identified poor management of interest-rate risk as a central vulnerability in the SVB failure.
Why Banks Can Get Into Trouble Even Without Bad Loans
This is important.
You might assume:
"A bank fails because its borrowers stop paying."
That can certainly happen.
But it's not the only way.
A bank can experience trouble because:
Interest rates move sharply
Bond prices fall
Depositors withdraw funds
Funding becomes expensive
Liquidity disappears
Confidence collapses
Several of these can happen at the same time.
SVB is a particularly clear example because the immediate failure mechanism involved a liquidity run, while the deterioration in the value of its securities helped trigger the loss of confidence that preceded the run.
Why Confidence Is an Asset Too
A bank's customers don't normally inspect the entire balance sheet every morning.
They trust that:
“When I need my money, it will be there.”
That confidence is essential.
Once customers stop believing it, the bank can face a flood of withdrawals.
And because banks operate with maturity transformation, that flood can become dangerous very quickly.
This is why financial stability isn't just about accounting numbers.
It's also about:
Confidence
Liquidity
Market access
Capital
Risk management
Why Banks Borrow From Other Banks
Banks can sometimes obtain short-term funding from other financial institutions.
This allows one bank with temporary liquidity needs to obtain funding rather than immediately selling assets.
Interbank and other wholesale funding markets can therefore help banks manage liquidity.
But these markets can become less reliable during periods of financial stress.
That is why central banks provide additional liquidity facilities.
What Is the Federal Reserve's Discount Window?
The Federal Reserve's discount window allows eligible depository institutions to borrow directly from their Reserve Bank against eligible collateral.
Its purpose includes providing liquidity to banks and supporting the smooth functioning of the financial system. (federalreserve.gov)
This is important because a bank experiencing a temporary liquidity problem doesn't necessarily need to sell every asset immediately.
Central-bank liquidity can sometimes give it time to stabilize.
But access to liquidity doesn't make an insolvent bank healthy.
Again:
Liquidity ≠ solvency
Why Central Banks Care About Bank Runs
A bank failure can affect more than the individual institution.
Suppose:
Bank A fails
Customers of similar banks become nervous.
They begin withdrawing deposits.
Other banks face liquidity pressure.
Those banks sell assets.
Asset prices fall.
Other financial institutions become nervous.
Credit becomes harder to obtain.
Businesses reduce investment.
Consumers become more cautious.
A problem that started at one bank can spread.
This is called contagion.
The FDIC documented contagion following SVB's failure, as depositors at other banks with similar characteristics began withdrawing funds.
What Happens to the Economy When Banks Stop Lending?
Banks are the financial plumbing of the economy.
Businesses depend on bank credit.
Households depend on mortgages and consumer loans.
Small businesses often rely heavily on bank financing.
If banks become afraid to lend, economic activity can slow.
That can create a chain:
Bank stress
↓
Less lending
↓
Less business investment
↓
Less hiring
↓
Less consumer spending
↓
Slower economic growth
This is why banking problems can become economic problems.
What Does a Bank's Balance Sheet Really Tell You?
When you hear:
“Bank X has $500 billion in assets.”
don't stop there.
Ask:
What are those assets?
Loans?
Treasuries?
Mortgages?
Commercial real estate?
Other securities?
How liquid are they?
Can they be converted to cash quickly?
How risky are they?
Could borrowers default?
Could market prices fall?
How much capital does the bank have?
What's the cushion against losses?
Where does its funding come from?
Retail deposits?
Uninsured corporate deposits?
Wholesale borrowing?
How stable are those deposits?
Would customers likely leave quickly during stress?
These questions are much more revealing.
A Simple Bank Health Checklist
You don't have to be a banking analyst to understand the basics.
When evaluating a bank, think about:
Capital
Can it absorb losses?
Liquidity
Can it meet withdrawals?
Asset quality
How risky are its loans and securities?
Funding
Where does the money come from?
Deposit concentration
Are deposits spread across many customers or concentrated among a few large ones?
Interest-rate exposure
Could rising or falling rates materially hurt the balance sheet?
Management
Does the bank appear to understand and control its risks?
The FDIC's post-2023 reviews repeatedly emphasized the importance of strong risk management, capital, liquidity, and diversified funding.
The Biggest Lesson From SVB
The story of Silicon Valley Bank can be reduced to a few interconnected problems.
The bank:
Grew rapidly
↓
Collected a large amount of deposits
↓
Invested heavily in longer-duration securities
↓
Interest rates rose
↓
The market value of those securities declined
↓
Customers began withdrawing deposits
↓
The bank needed liquidity
↓
Securities were sold at losses
↓
Confidence collapsed
↓
Withdrawals accelerated
↓
The bank failed
This chain is simplified, but it captures the essential mechanism identified in the FDIC's analyses.
The most important part is that no single event explains everything.
It was the interaction between:
Interest-rate risk
Liquidity risk
Funding concentration
Management weaknesses
and
loss of confidence
that made the situation so dangerous.
Does a Bank With $1 Billion in Assets Have $1 Billion Available to Customers?
No.
This is probably the most important answer to remember.
If a bank has:
$1 billion in assets
that does not mean it has:
$1 billion in cash
waiting for depositors.
Much of the money may be tied up in:
Loans
Securities
Other investments
Those assets have value.
But they aren't all immediately spendable cash.
That's how banking works.
What Should You Do If You're Worried About Your Bank?
This article isn't telling anyone that their bank is in trouble.
But as a general financial-awareness habit, people should understand:
Who regulates the bank?
Is your deposit insured?
What is the applicable insurance limit?
Are you holding unusually large uninsured balances?
Do you understand the difference between a bank deposit and an investment account?
In the United States, FDIC coverage is generally $250,000 per depositor, per insured bank, per ownership category, subject to the FDIC's rules.
Rules differ in other countries.
Readers outside the United States should check their own country's deposit-insurance system.
Bank Deposits Are Not the Same as Investments
This distinction matters.
The FDIC generally insures eligible deposit products such as:
Checking accounts
Savings accounts
Money market deposit accounts
Certificates of deposit
subject to applicable limits and conditions.
It does not insure:
Stocks
Bonds
Mutual funds
Crypto assets
or other investment products.
U.S. Treasury securities are also not FDIC-insured, although they are obligations of the U.S. government.
That distinction is important because people sometimes assume that everything inside a financial institution is protected in exactly the same way.
It isn't.
Why This Topic Matters Even If You Don't Own Bank Stocks
You might think:
"I'm not a banking investor. Why should I care?"
Because banks affect almost everything.
Your:
Mortgage
Credit card
Business loan
Savings account
Payment transactions
Investment account
may connect to the banking system.
And when banking conditions change, they can affect:
Credit availability
Interest rates
Economic growth
Employment
Asset prices
Consumer confidence
Understanding banks therefore helps you understand the economy itself.
The Bigger Picture
A bank can fail while owning billions of dollars in assets because assets are not all cash, and accounting value is not the same as immediate liquidity.
A bank may have enormous amounts of:
Loans
Bonds
Mortgages
Other investments
but still face a problem if customers suddenly demand cash faster than the bank can obtain it.
If the bank has to sell assets during a stressed market, it may realize losses.
Those losses can reduce capital.
That can further damage confidence.
More customers can withdraw money.
The bank may need to sell more assets.
And the cycle can accelerate.
That's why banking is built around a delicate balance between:
Liquidity
Capital
Asset quality
Funding
Interest-rate risk
Confidence
The 2023 failure of Silicon Valley Bank demonstrated this relationship dramatically. The bank had approximately $209 billion in assets at year-end 2022, yet a rapid depositor run following concerns about its securities portfolio and capital position overwhelmed the institution.
The lesson isn't that banks are inherently unsafe.
Modern banking systems have extensive regulation, deposit insurance, liquidity facilities, capital requirements, supervision, and resolution mechanisms.
The lesson is more practical:
A big balance sheet does not guarantee that a bank can survive a sudden liquidity shock.
And that's the answer to the question that started this article:
How can a bank with billions of dollars in assets fail?
Because the bank doesn't just need wealth.
It needs the right combination of:
Assets that retain value
Enough liquid resources
Enough capital to absorb losses
Stable funding
Good risk management
and above all:
the confidence of its customers and counterparties.
Once you understand that, the next time you see a headline saying:
“Bank with billions in assets fails”
it won't seem quite as impossible.
You'll know what to look for.
Not just how big the bank is.
But what it owns, what it owes, how quickly it can raise cash, and how much loss its capital can absorb.
Frequently Asked Questions
Can a bank fail even if it has more assets than liabilities?
Yes. A bank can face a severe liquidity crisis even if the overall value of its assets exceeds its liabilities. If it cannot obtain enough cash to meet withdrawals or other obligations, liquidity problems can become critical.
What is the difference between liquidity and solvency?
Liquidity is the ability to access cash when needed. Solvency is the broader ability to meet obligations based on the value of assets and liabilities. A bank can face a liquidity problem without initially being insolvent.
Why do rising interest rates hurt some banks?
Rising rates can reduce the market value of existing fixed-rate bonds and other securities. They can also increase funding costs and affect loan demand. The impact depends on the bank's balance sheet.
What happened to Silicon Valley Bank?
SVB failed in March 2023 after rising interest rates reduced the value of its securities, concerns about its financial position weakened confidence, and depositors rapidly withdrew funds. The FDIC reported approximately $42 billion of deposit withdrawals on March 9, 2023.
What is an unrealized loss?
An unrealized loss occurs when an asset's market value falls below its purchase price but the asset has not been sold. The loss becomes realized when the asset is sold at the lower price.
Why can't banks keep all deposits in cash?
Keeping all deposits in cash would severely limit the bank's ability to lend and invest. Banks use their balance sheets to provide credit and other financial services while maintaining liquidity for withdrawals.
What is a bank run?
A bank run occurs when many depositors attempt to withdraw money from a bank at roughly the same time, often because they fear the bank may have financial problems.
Are bank deposits insured?
Deposit insurance depends on the country and institution. In the United States, FDIC insurance generally covers eligible deposits up to $250,000 per depositor, per insured bank, per ownership category, subject to applicable rules.
Does FDIC insurance cover stocks and bonds?
No. FDIC insurance covers eligible bank deposits, not stock investments, bond investments, mutual funds, crypto assets, or other investment products.
Can a bank have too many long-term investments?
Yes. A bank with substantial long-duration assets can become vulnerable to interest-rate changes, particularly if those assets need to be sold during a period when market prices have fallen.
Why are uninsured deposits important?
Large uninsured deposit balances can be more sensitive to confidence because amounts above the applicable insurance limit are exposed to the resolution process if the bank fails. The FDIC identified heavy reliance on uninsured deposits as an important vulnerability in several 2023 bank failures.
Can central banks prevent bank failures?
Central banks can provide liquidity facilities and governments can establish resolution and deposit-insurance mechanisms, but these tools do not make every bank immune from failure. A fundamentally insolvent institution can still require resolution.
Sources
Federal Deposit Insurance Corporation — Lessons Learned from the U.S. Regional Bank Failures of 2023
Detailed analysis of Silicon Valley Bank, including its $209 billion asset base, rapid deposit withdrawals, uninsured deposits, securities losses, and the relationship between liquidity and capital.
Federal Deposit Insurance Corporation — The Resolution of Large Regional Banks: Lessons Learned
Analysis of the failures of SVB, Signature Bank, and First Republic and the role of uninsured deposits, unrealized securities losses, capital, liquidity, and resolution mechanisms.
Federal Deposit Insurance Corporation — Recent Bank Failures and the Path Ahead
Explanation of interest-rate risk, maturity mismatches, securities losses, liquidity pressures, and the vulnerabilities that contributed to the 2023 failures.
Federal Deposit Insurance Corporation — Request for Information on Deposits
Analysis of uninsured deposits and depositor behavior, including the role of deposit runs in the failures of SVB, Signature Bank, and First Republic.
Federal Deposit Insurance Corporation — Deposit Insurance Basics
Official explanation of deposit insurance and the current standard maximum deposit insurance amount of $250,000.
Federal Deposit Insurance Corporation — Deposit Insurance FAQs
Explanation of what happens to depositors when a bank fails and how the FDIC handles insured and uninsured deposits.
Federal Deposit Insurance Corporation — Failing Bank Resolutions
Explanation of how the FDIC resolves failed banks, including sales to healthy institutions and protection of insured deposits.
Federal Deposit Insurance Corporation — 2026 Bank Failures
Current FDIC record showing that there have been two U.S. bank failures during 2026 through the latest available data: Metropolitan Capital Bank & Trust and Community Bank and Trust–West Georgia.
Federal Reserve — Discount Window
Official explanation of the Federal Reserve's lending facility for eligible financial institutions and its role in providing liquidity against eligible collateral.
Disclaimer
The information published by The Margin Stream is provided for general informational and educational purposes only. Nothing in this article constitutes personalized financial, investment, banking, tax, legal, or other professional advice. Banking systems, deposit-insurance rules, regulations, and resolution procedures vary by country and institution. Historical examples do not predict future bank failures or financial-market outcomes. Readers should conduct their own research and consult qualified professionals where appropriate.
Muhammad Akif
Founder & Editor
The Margin Stream