Bank Failures: Solvency and Liquidity

Sergio Correia, Stephan Luck and Emil Verner

Richmond Fed Economic Brief, 2026, vol. 26, issue 12

Abstract: Bank failures are almost always preceded by weak fundamentals: bad loans, low capital and/or declining earnings. Meanwhile, depositor panics, while dramatic, are rarely the root cause. Low recovery rates on failed banks' assets and examiners' postmortem assessments both point to deep insolvency, even in banks that experienced runs before failing. Deposit insurance and emergency lending alone cannot prevent crises. Policies that ensure adequate bank capital and sound risk management are essential.

Keywords: Financial; Institutions; and; Regulation (search for similar items in EconPapers)
Date: 2026
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