I am hearing a lot about the recent mortgage company and bank failures. What is a bank failure?
A bank failure occurs when a bank's liabilities exceed its assets, and there isn't a viable plan to quickly remedy the situation. A bank's liabilities include what the bank owes to its customers for their depositaccounts, borrowings from other sources, amounts owed to vendors, etc. The bank's assets are the loans it has made, investments, bank buildings and equipment, and similar items.
Bank assets can drop in value. For example, if a lot of the bank's mortgage loan borrowers default on their loans, the value of all of the loans in the mortgage portfolio can shrink. When assets lose value quickly, the bank can have a liquidity crisis that could harm the bank's ability to meet its obligations.
Bank regulators use many tools to try to prevent bank failures, but sometimes their efforts are not successful. Rather than allow matters to get worse and the mismatch of assets and liabilities to get greater, a regulator can close the institution and place it into receivership with the FDIC. The FDIC then takes appropriate action to protect the remaining bank assets.
The failed bank may be acquired by another depository institution that purchases the insured deposits and much of the failed banks assets. If an acquiring bank cannot be identified, the FDIC may create a new entity to take over the bank as a conservator, or if neither of those options proves viable, the FDIC can shutter the bank, pay off the insured deposits, and liquidate the remaining assets. Any assets left after satisfying insured depositors will go to satisfy other bank liabilities, possibly including some part of any uninsured deposit balances. The National Credit Union Administration -- NCUA -- assumes the FDIC role in failures of insured credit unions.
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I am hearing a lot about the recent 
A bank failure occurs when a bank's liabilities exceed its assets, and there isn't a viable plan to quickly remedy the situation. A bank's liabilities include what the bank owes to its customers for their 