Financial institutions are legal persons with a license to facilitate financial transactions for their customers. A substantial part of these transactions involve credit facilitation and payment systems. Individual bank customers have unique needs based on their personal preferences. The result is a constant change between the assets and liabilities of the bank. Via a complicated, yet sophisticated set of measures, banks can continue to process payments without having that real value available on their accounts. The question how bank deposits are secured is therefore legitimate.
An interplay of bank capital requirements, sound financial architecture, market discipline and deposit insurance is designed to maintain confidence in the financial system. It also serves the payment system that supports on a micro economic level day to day spending of society. This combination both ensures direct stability and confidence in the financial system, but also provides for calmness in times of financial distress.
Under normal circumstances, banks and credit institutions are considered safe. There are, however, situations and uncertainties that trigger financial instability. The position of the central bank as a lender of last resort is justified for financial institutions with temporary financial challenges that can be resolved rather easily. The lender of last resort is not available for institutions that fail or are likely to fail. This is where statutory administration and deposit insurance provide additional safety nets for creditors and bank account holders.
In general, bank deposits are safe when markets are stable and financial institutions operate within the boundaries of their regulatory mandate. These assets are secured by the functioning of the financial system and in times of severe stress via local deposit protection schemes. The scope and nature of deposit insurance varies per jurisdiction and its most common questions are outlined on this website.