Bank failure

Bank failures are common during severe depressions. Bank liquidity disappears, depositors who wish to withdraw are kept waiting for days, weeks, or months, and runs on banks ultimately cause their closure. Hundreds of banks failed in the Great Depression following the stock market crash of 1929 in the USA, and thousands of depositors lost their savings. Recent strains in the international monetary system have caused some failures, such as Continental Illinois in the USA.

The amount of deposits in failed USA banks from 1977 through 1983 was $18,520 million, which would have been lost to depositors if the funds were not insured by the government. From 1982 to 1988 some 620 American banks failed or have been forced to merge and 100 savings and loan institutions have been closed and another 350 have been declared insolvent. These thousand-odd banking failures have involved 7% of the total domestic deposits in savings institutions in the USA. It has been estimated that the cost to the government of protecting investors may total over $500 billion over the next 30 years.