Banking and finance serves an important objective and is widely accepted in the western world. Microeconomics requires workers and consumers to house their finances in a protected environment. Financial institutions provide solutions that allows account holders to receive, spend and save money. Because not everyone uses their money at the same time and some account holders assemble more assets than they can spend, there may be a surplus on the account balance. Banks use this surplus to lend out to other customers. There is risk involved when borrowers default on their payment. A sophisticated and for most people unclear system aims to protect the credit institution from failing. However, these financial safeguard are based on statistic modelling and do not always predict the future.
In general there are two reasons for banks to fail. Failure means that the bank is unable to repay account holders on demand. The first and most common reason for failure is the lack of liquidity to cover creditor demand. The second reason for failure has less to do with direct financial defiance and relates to conduct risk. Conduct risk is for example a violation of bank regulation, conspiracy to commit financial crime, or assistance with money laundering. Regulators and other supervisors can determine a bank to fail or likely to fail, or close the bank for alleged destabilization of the local financial system. Intervention is then allowed to protect the public interest. A resolution decree is announced and the bank is placed under statutory administration.
Resolution and administration are followed by the closure of account payment facilities. Customers have no access to their money anymore. To avoid severe disruption of the payment systems, the special administrator can provide eligible account holders with some and in several cases all of their money. When the resolution planning takes too long, deposit insurance allows for a rather fast repayment of the insured account balance to qualified account holders. The submission of a deposit guarantee claim must leave out uncertainty because it is not a done deal. This is where collective information gathering helps individual claimants to learn from each other and do the right thing immediately. They minimize risk and maximize the potential of account balance repayment.