The author is convinced that customers of commercial banks (including depositors) can, if they are sufficiently informed and involved, identify the banks in distress on the basis of generally available data.

The paper lists and analyses the symptoms of a bank's poor financial standing and the particular data allowing the depositor to appreciate the probability of the bank's failure within the given banking system. This presentation of this simple, public source-based depositor's early warning system is the key part of the paper. Besides, the author briefly discusses the essentials of a bank failure, the stability of banking systems and the development and application of more sophisticated early warning systems, created by organisations outside the industry and individual experts.

A depositor, in trying to identify an "endangered" bank, should primarily consider the following items on the bank's balance sheet:

• the total assets, bearing in mind the principle that a big bank is more likely to be saved by the authorities than a small one (the "too big to fall" principle);
• the financial result; a loss is a sign of long-term or temporary financial problems;
• amounts due to financial institutions. These tend to fall considerably if the bank is grappling with problems;
• amounts due to non-financial institutions, which tend to rise with a bank in distress;
• the required reserve: certain banks under a restructuring programme are exempt from holding and depositing a required reserve.

Other important indicators of the bank's situation are:

• interest rate on deposits; ailing banks tend to offer higher rates, as they need to gain more funds. Alternatively, (or additionally) they may be able to operate at a lower cost due to external assistance;
• solvency ratio - some banks do not release it, which may - but need not - result from problems in attaining the minimum value for the ratio;
• ratings by credit rating agencies, which evaluate their credibility ( a refusal to grant a rating or a low rating are typically a sign of a poor financial standing);
• state help having been granted to the bank in the past; the authorities are unlikely to declare a bankruptcy after contributing substantial funds to save a bank (which would mean a mistake was made in the first place);
• the amount of contribution to the Guaranteed Deposit Protection Fund, which reflects the assessment of the bank's safety and the likelihood of its failure (the higher the amount, the more likely the bank is to be declared bankrupt within a given system).

The author concludes by pointing out that while one of the "flags" mentioned above does not usually mean serious trouble, several of them observed at the same time may well signal that a bank is likely to fall.