Failed Bank Law and Legal Definition

Failed bank is a bank which is insolvent, or has failed to meet its obligations to depositors and other creditors, and has been taken over by the banking department for liquidation and closing of its affairs.

“A bank has an obligation to pay their existing debts. If the banks do not pay them, they fail.” [Godfrey v. Terry, 97 U.S. 171 (U.S. 1878)].