What Is a Bank Failure?

By Catherine Brock – Updated Jun 2, 2025 at 10:59 AM

Key Points

Bank failures stem from an inability to meet obligations due to asset reductions.
FDIC insures deposits up to $250,000, providing safety for bank customers.
SVB failed due to bond losses and withdrawals, assets later sold to First Citizens Bank.

A bank failure is the closure of a bank by state or federal regulators, usually because the bank doesn't have enough liquidity to continue normal operations. Regulators will force a shutdown when the bank is in danger of being unable to honor cashed checks, fulfill withdrawal requests, or meet other financial obligations.

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An infographic explaining four different scenarios that can lead to a bank failing or collapsing. — Image source: The Motley Fool.

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SVB took extreme measures to adjust to increasing customer withdrawals. On March 8, 2023, the bank announced it had sold bonds at a $1.8 billion loss and was planning to sell its own stock to raise $2.25 billion. The announcement sparked panic among SVB's customers, many of whom rushed to withdraw their funds -- exacerbating an already troublesome situation.

On March 10, 2023, the California banking regulator announced it had taken over SVB and appointed the FDIC to settle the bank's obligations. Two days later, the Treasury, Federal Reserve, and FDIC announced that all depositor funds, even those that exceeded standard FDIC limits, would be repaid. Most of SVB's assets were later sold to First Citizens Bank (FCNCA +1.71%).

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About the Author

Catherine grew up in Southern California wearing a lot of black and trying to perfect the art of sarcasm. Prior to joining The Fool as a contract writer, Catherine was climbing the corporate ladder in marketing roles and dabbling in too many side hustles. When she's not writing, she can be found riding a horse in the country or shopping online for clothes.

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Catherine Brock has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.