No, banks can go bankrupt like any other company. I think you are refering to Chapter 11 (in the US), which is true, isn't practical for a bank, because the bank has no other business than being trustworthy to its creditors, so it couldn't really operate under Chapter 11.
The deposit insurance only applies to deposits below a certain threshold and doesn't concern the bank, it just means the state will make the customer good for its loss in a bankruptcy.
Now in practice central banks will do everything they can to avoid getting there, first by forcing banks to hold a lot of capital and liquidity. But it can still happen, and one of the tools available is bail-in, which effectively replicates the effect of a chapter 11 over a week end, outside of courts.
I think in most jurisdictions, wholesale creditors are the most likely to get a haircut in a bail-in, and the insured part of the deposits is explicitely non-bailinable. But any deposit above the insured threshold can in theory be affected by a bail-in and have a haircut applied.
But a lot of fail safe mechanisms will have failed before that happens.
Thanks, yup- to be more precise, a state of insolvency- liabilities > assets at close of business- may result in one or more outcomes, one of which is essentially bankruptcy + bail in, but another might be, eg being absorbed/acquired?
Correct. Though just to be precise, a bailin would happen well ahead of a bankruptcy, the regulator wouldn’t wait for the situation to be that bad to call the bank non viable (except in a jump to default scenario).
Absorbed/acquired: that’s a bailout. Always an option but I think everyone agrees no one wants to see that happen again unless it is a willing private buyer.
The deposit insurance only applies to deposits below a certain threshold and doesn't concern the bank, it just means the state will make the customer good for its loss in a bankruptcy.
Now in practice central banks will do everything they can to avoid getting there, first by forcing banks to hold a lot of capital and liquidity. But it can still happen, and one of the tools available is bail-in, which effectively replicates the effect of a chapter 11 over a week end, outside of courts.
I think in most jurisdictions, wholesale creditors are the most likely to get a haircut in a bail-in, and the insured part of the deposits is explicitely non-bailinable. But any deposit above the insured threshold can in theory be affected by a bail-in and have a haircut applied.
But a lot of fail safe mechanisms will have failed before that happens.