A bank is said to have failed when it is unable to finance depositors. This can happen as a result of various reasons, among them being below its protective ratios, prompting closure by the government.
In most cases, the government takes over the operations of the bank with the aim of trying to save it from sinking. Usually, these occurrences scare the depositors leading them to react by suing the bank, with the aim of making the courts freeze any money lest the bank goes down completely. Usually, if you make such a move, you are excluded from making any claims as ordinary depositors during liquidation. Suing the bank only further complicates liquidation due to most depositors’ funds being used up in legal fees. In the event of an offshore bank going down, the situation becomes an everyone for himself situation with not much to be done.
Liquidation: When the government sees that for sure the bank cannot be salvaged, it resorts to liquidation. A liquidator is appointed to establish the bank’s assets and liquidate them, with the money being distributed to the depositors, depending on the amount each had deposited, and each getting a certain percentage of the money deposited.
Claims: The depositors are entitled to file claims. This includes filing documents, accounts and the amount of money deposited. The liquidation period takes about 6 to 18 months.
To avoid getting hurt as a depositor, always avoid being part of an offshore liquidation process, and above everything else, go for banks with full licenses to conduct business with everyone – including the citizens of that country.