Six Signs Your Bank Is About to Fail (and What to Do About It)
Most people still rely on banks for most of their financial needs: in fact, 96 percent of the country’s population has at least one bank or credit union account. (And if you use a bank to make payroll and pay bills, you should even consider opening a second bank in case things go wrong.)
But what happens if your bank goes bankrupt? Bank failures are not common, but they do happen: two bankruptcies just last year , and 2025 has already seen one bank fail in January. While your money is probably generally safe even if your bank fails, a bank failure can still cause you a lot of trouble because your funds may not be available for several days (or longer) while the Federal Deposit Insurance Corporation (FDIC) cleans up the mess, and any loans or mortgages you have with your bank will be sold to other lenders without your input. Therefore, being able to spot the signs of bank failure early will allow you to make smart decisions that will save you stress later on.
Signs that your bank is on the verge of bankruptcy
“Bank failures almost always follow the same pattern,” says Corey Frank, founder and CEO of Robora Financial . “Actual or expected losses lead to questions about capital adequacy, which then raise concerns about solvency. Fears about solvency often prompt customers to take self-preservation actions, such as withdrawing deposits. These actions, in turn, can cause a liquidity crisis. Liquidity risk is unique among risk types because the perception of a problem can create a real problem—customer behavior itself can lead to bank or credit union failure.”
Some of the key signs of bank failure are easy to spot if you pay attention:
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Closing branches. An obvious sign of crisis in any business is the closure of plants, which often implies a need to cut costs and concentrate resources.
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Layoffs. If your bank is starting to lay off staff, it’s time to at least start looking at its financial situation.
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Frozen HELOCs. If you have an old home equity line of credit that you haven’t used for a while and your bank suddenly freezes it, it could be an indication that the bank is trying to recoup enough funds to stay afloat.
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Raising rates. If the interest rates your bank charges on loans suddenly skyrocket, it’s a sign that the bank is looking to quickly increase its income.
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Do not renew loans. If a bank suddenly starts allowing existing loans to local businesses to expire, it could mean a liquidity crisis is brewing there.
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Delays in payment processing. If your bank begins to be slow in paying interest or processing other payments, this may indicate that the bank is struggling to maintain its cash reserves.
Frank notes that banks also often activate what they call a “Recovery Plan” when a crash is imminent, including cutting or delaying stock dividends, selling off assets and launching aggressive deposit campaigns with above-market rates in hopes of slowing the pace of withdrawals.
What to do if you suspect your bank will go bankrupt
There are a few basic things people can do to protect themselves from bank failure. “Stay informed,” says Frank. “Look for the latest news about your bank or credit union for any of the red flags mentioned. Analyze financials if you can: Download and review the institution’s call report (for banks) or the National Credit Union Administration (NCUA) 5300 report (for credit unions) to identify negative trends.”
But even if you’re paying attention, a bank failure can still surprise you. “It doesn’t have to be a deep recession or economic collapse if there are internal problems at the bank that the public is simply unaware of,” says Adem Selita, co-founder of The Debt Relief Company . “However, banks are stress tested and checked for these problems quite often to minimize the risk of such situations occurring. But this does not mean that the system is reliable.”
Both Frank and Selita emphasize the simplest way to protect yourself: make sure your deposits are within the FDIC (for banks) or NCUSIF (for credit unions) insured limits, which are currently $250,000. “Even if your bank fails, we hope that you will still be solvent for this amount,” Selita notes.
If you have multiple bank accounts and aren’t sure your deposits are fully covered, you can use the FDIC’s insurance estimator to estimate how much of your money will be protected in the event of a bank failure. If you don’t think 100% of your funds are covered, you should consider moving some of that money elsewhere before the worst happens.