First identify what has gone wrong
A bank finances long-term loans and securities partly with short-term deposits. If many customers leave at once, it can lack immediate liquidity even though sound assets will pay later. A rushed sale may crystallise losses. Mobile transfers and social media also allow a run to accelerate faster than an old queue outside a branch.
Insolvency is different: after realistic losses, asset value is insufficient to meet liabilities. Shareholder capital is meant to absorb losses first. A liquidity loan can buy time but cannot restore the value of a bad loan. It is therefore dangerous to rescue an insolvent bank under the label of a brief cash shortage.
What happens before a bank is closed
Supervisors may demand more capital, limit dividends, require a recovery plan or seek a buyer. A solvent bank with temporary difficulty may obtain collateralised liquidity under defined conditions. In the euro area, the relevant national central bank provides emergency liquidity assistance, or ELA, within Eurosystem rules; its purpose is to help a solvent institution with a temporary problem, not hide a permanent loss.
When a bank is failing or likely to fail, authorities decide whether ordinary insolvency or special public-interest resolution is appropriate. Resolution aims to preserve critical services such as payments and allocate losses under a statutory hierarchy without automatically placing the entire bill on taxpayers.
- private solution: new capital, a sale or merger with a sounder bank
- ELA: temporary collateralised liquidity for a solvent bank
- insolvency: winding up under ordinary insolvency rules
- resolution: public-interest restructuring that preserves critical functions
Who bears losses and what Slovakia's Deposit Protection Fund covers
In a bail-in, losses fall first on shareholders and then on eligible creditors according to their ranking; claims can be written down or converted into equity. This differs from a bailout funded with outside public support. Covered deposits receive special protection, and resolution rules include exclusions and a creditor hierarchy, so no single slogan predicts every case.
Slovakia's Deposit Protection Fund states a general compensation limit of €100,000 per depositor at one bank. The same person's deposits at that bank are aggregated for the limit; the law also contains certain temporarily protected balances and exclusions. Ordinary compensation currently requires no application and is generally paid within seven working days, but not every investment product, bond, share or cryptoasset is a covered deposit.
What Bitcoin self-custody changes
BTC in a wallet controlled by its user is not a claim on a bank, so a bank failure cannot directly write it down and bank deposit-insurance limits do not apply. The user bears other risks instead: losing a seed, key theft, an erroneous transaction, technical mistakes and price volatility. No central authority can simply restore an account after a valid signature.
A BTC balance at an exchange or custodian once again depends on a counterparty, legal segregation and insolvency rules. Self-custody therefore addresses one particular problem — dependence on a custodian's solvency — only when the user truly controls the keys. It does not eliminate human error or the need for secure backups and an inheritance plan.