A situation in which a
bank is unable to
service its debts. This may occur when too many of a bank's
loans default or, more rarely, when a bank has too few accounts providing it with
cash flow. Bank failure used to cause great turmoil to the
financial system, but since the Great Depression, the
FDIC has
insured bank accounts up to a certain amount to reduce the pressure for
bank runs. When a bank fails, the FDIC takes it over and either
sells it to another bank or operates the bank itself.