This section is from the book "American Commercial Law Series ", by Alfred W. Bays. Also available from Amazon: American commercial law series.
The bank fails when its assets are not sufficient to pay its liabilities.
In this section the results of bank failure are briefly discussed.
Failed banks are closed up and a receiver appointed under the laws of the jurisdiction under which the bank is organized. The bankruptcy act does not apply to banks organized either under the State or Federal law, although it does apply to private banks.
General depositors of a bank are general creditors and share pro rata with other general creditors. Special depositors may recover the special deposit in full provided its identity has been kept intact.
The owner of a note left at a bank for collection can in case of its failure recover the same from the bank or the proceeds of such collection provided they have not been credited to a general account. It has also been held that a deposit made after a bank is hopelessly insolvent may be recovered even if it has lost its identity by mingling with the general fund if there was enough on hand continuously to cover the deposit.173
173. Massey v. Fisher, 62 Fed. 958.
The receiving of deposits when a bank is insolvent and so known to be is made a criminal offence.
The liability of the stockholders in case of a failure of the bank has already been considered.