Naturally, people would prefer not to imagine the failure of banks. But bank failures have happened from time to time in many countries despite the best endeavours of managers and regulators. And it would be unwise to ignore this possibility in Australia because a bank failure is not only very damaging for the depositors immediately affected, but it can create a series of problems flowing well beyond that particular institution. This flow-on damage can occur in various ways, including through effects on depositor confidence, but perhaps the most important channel is the payments system. …
