What does it mean when a bank is “failing or likely to fail”?
Last updated on 20 February 2026
Banks play an important role in the economy. They provide critical services to people and companies like providing loans, taking deposits and facilitating payments, and these services must continue even if a bank fails. The financial system is also highly connected, and past financial crises have proven how quickly problems can spread if not tackled effectively.
When a bank is “failing or likely to fail”, it means that it is no longer seen as being financially sound and may need either resolution or liquidation.
Our supervisors are responsible for assessing whether larger banks under their direct supervision are failing or likely to fail, whereas the national supervisors do so for smaller banks. Resolution authorities like the Single Resolution Board can also determine that a bank is failing or likely to fail.
What happens if I have a deposit with a bank that has been declared failing or likely to fail?
Deposit guarantee schemes are systems in each EU Member State that reimburse depositors if their bank is unable to pay deposits. Deposits up to a guaranteed limit of €100,000 are protected. All banks must be members of such a scheme and pay contributions into the deposit guarantee fund of the scheme.
Failing or likely to fail assessments rely on various relevant indicators. But supervisory judgement is a crucial aspect when assessing a bank’s likelihood to recover.
What happens when a bank is declared failing or likely to fail?
Resolution is a process used to restore a bank’s ability to keep operating. A failing or likely to fail assessment does not automatically lead to resolution.
Once a bank is assessed as failing or likely to fail, the Single Resolution Board must assess whether alternative measures could prevent the failure within a reasonable time and, if not, whether resolution is in the public interest. Resolution is treated as being in the public interest if it is necessary to meet the following objectives:
- preserving financial stability and avoiding contagion to other institutions
- protecting depositors and critical banking functions
- minimising the use of public funds
If the Single Resolution Board decides that resolution is not in the public interest, the bank is wound down under national insolvency procedures.