Deposit Risk

Deposit risk refers to the potential loss that depositors may face if a financial institution holding their deposits becomes insolvent or fails to meet its obligations. This risk is particularly relevant in countries where bank deposits are not fully insured by a government-backed insurance scheme. In such cases, depositors may lose part or all of their funds if the bank goes bankrupt. Governments often implement deposit insurance schemes to protect depositors from such risks, but there are limits to the amount insured. Additionally, systemic risks, such as banking crises, can amplify deposit risk, affecting the confidence in the financial system as a whole.

Example

During the 2008 financial crisis, some depositors faced the risk of losing their savings when certain banks became insolvent, leading to government interventions.