When a bank cannot pay its debt and must close. Overlegeraging may be the reason for this. Any build up produced by customers tend to be insured by the FDIC insurance.
Situation in which a financial establishment basically becomes insolvent and incapable of meet to its credit obligations, and is forced to close-by national regulators. This often takes place when institution has overleveraged it self with no longer has the funds essential to preserve a reliable circulation of cash. If the establishment provides FDIC insurance to its customers, deposits (typically up to $100,000) are guaranteed because of the government.
the inability of a bank to generally meet its credit obligations