People would question how the bank could continue to thrive despite so many bad loans. Some might wonder why the bank would not honor checks written on insufficient funds, if the banks create those funds from nothing. Corporations which are unable to meet their financial obligations to banks might wonder why they must work to repay the bank for something it got with a flick of a loan officer's pen. No, it is important, if confidence is to be unshaken, that banks appear to be like other businesses, when, of course, they are nothing like other businesses. This means that banks must be allowed to fail, even though they are the source of modern money.
Failure occurs when liabilities outweigh assets.
The IOUs of its customers. Its liabilities are their deposits. Or declares bankruptcy. His million dollar note then becomes worthless. But if his borrowed million dollars is on deposit in that bank, the liability of the bank for a million dollars remains.