Understanding Bank Failure: Causes, Consequences, and Prevention

This presentation discusses the causes, consequences, and prevention of bank failure. It covers topics such as bad loans, non-alignment of assets and liabilities, illegal activities, and non-traditional businesses. It also explains what happens when a bank fails and how the Australian government helps depositors. Additionally, it provides measures to prevent further bank failures.

Slide 1
Cover page
Slide 2
In the slide 2 the above PPT represents the introduction of what is meant by the bank
failure has been explained thoroughly. How banks work when they are failed either
due to the non- payment of the money by the clients, natural calamity or due to the
loopholes in the working of the bank itself. A bank fails to operate because of the
three of the above reasons.
Slide 3
In the slide 3 of the presentation the major causes of the bank failure have been
discussed. The major causes as determined for the bank failures are listed as follows.
Under the heading bad loan if the amount is converting into a non-performing asset
where the loan is not repaid for more than 90 days can be considered as the bad loan.
At times the assets of the banks are not forming any alignment with the liabilities in
that case the banks may fail to operate at a broader level. Coming to the second last
point where inappropriate loans are given to the insiders of the bank or when bank has
entered into the illegal practices can also be a major concern for the customers as well
as the bank itself.
Slide 4
In the fourth slide explains one of the basic reasons of the bank failure is the upside
down effect in the stock market. This factor is very much dynamic in nature. The way
that can be explained as a cause of the bank failures is lack of supervision from the
side of the government. When the bank is involved in the activities such as money
laundering or any other kind of illegal activities the chances are that the bank may
fail. Over the years banks have entered into the non-traditional businesses to improve

the profit status of the business. These are certain kind of factors under which the
bank can fail and lose their identity or potentiality. Due to this kind of transactions the
bank resulted into the failure. To cover the losses and by pass internal controls a
number of the financial institutions have been brought down significantly.
Slide 5
The fifth slide explains about what happens when the bank fails and how the
Australian Government helps in saving the money of the depositors and provide them
the cover against the losses happened due to the bank failures. Most of the banks are
ADIs insured. If the bank is not insured the huge has been taken by the bank. When
the banks fail to operate they are being taken by the ADIs. When the bank fails it is
the responsibility of the government to insure the money of the clients and to keep
their deposits safe. They may sell the bank to another bank which is stronger or for a
particular point of time they can operate as federally owned bank. The FDIC is the
regulatory body which insures the deposits up to $250000. If the banks are keeping
the balance more than the prescribed limit the bank is at risk.

Slide 6
The customer’s points of view have also been discussed in the slide sixth. From the
customers point of view if a bank fails it comes under the category of the non-event.
Customers continue to use the cheques and the debit cards sometime the electronic
transfers. The specific timeframe for resolving the bank failures is not published by
the FDIC. When the banks are put to an end due to failure or bankruptcy the money is
no longer held by the weak bank the customers can take their money by writing a
cheque or transferring the money electronically. Sometimes the bank branches are
also destroyed by the natural calamity or terrorism. If the accounts are not insured
than the chances are most likely to cause an inconvenience. The money is an
important factor for the customers and from the client’s point of view if the money is
not safe they would not like to invest in the bank further.
Slide 7
In the slide 7th a detail analysis about what can happen to the money once the bank
fails to operate has been discussed. If the cash accumulated in the bank is large any of
the savings bank accounts and if the customer is insured by the Australian
government it will act as a cover against the money deposited. The money is
transferred under the Australian government and the money is transferred
electronically to the new bank which is strong and potential to hold on to the losses.
Slide 8
In the slide 8th the evaluation of what will the Australian government do if the bank
fails and what are the key responsibilities the members of the Australian Government

need to follow to ensure that the banks do not fail to operate next time. There are
certain strategies which are adopted by the government such as the reviewing of the
balances of the customers whose balance exceeds more than $50000. This way the
loopholes in the transactions can be find out and a review will only confirm any
variances if, in the balances.
Slide 9
In the slide 9 the graphical representation of the bank failures and banking system has
been pasted. The graph comprises of the major leading banks from the year 1961 to
the year 2017. The trend of the working of the banks has been depicted through the
use of line graph.
Slide 10
In the slide 10 various measures have been discussed on how to prevent further bank
failures. The measures were necessary to ensure that the banks shall operate at a par
speed and the variances shall be overcome to ensure the satisfaction to the customers
especially who have deposited their money in the bank. The regulators shall transfer
the money of the customers to the potential banks to ensure cover and safety. The
expenses shall also be taken into consideration while keeping a check. An optimal
capital structure is also required to avoid further bankruptcy.

Slide 11
The slide 11 contains the references.