The bank takes the money you lend them and gambles with it.
By and large, they gamble with it on what are called “derivatives”.
Without going into too much detail, derivatives are essentially contracts for a future purchase of an asset at a fixed price, regardless of what the market price for that asset might be at the eventual date of purchase.
If the market value of the asset is higher than the agreed upon fixed price, the bank makes profit; if the market value of the asset is lower than the agreed upon fixed price, the bank loses money; your money. They cannot pay off their bets.
Imagine someone who borrows money to place a bet that this team or that team will win the World Cup. If his team wins, everything is fine, but if his team loses, he has no money to pay back the loan. That is basically the derivatives market.
What has usually happened in the past when banks can’t pay off their bets, they ask the government to bail them out.
New rules adopted by the EU, however, and currently in place in the US, will allow banks to literally confiscate your savings to pay off their debts.
Money owed on a derivatives contract takes legal priority over the banks’ obligation to return your deposits to you.
These new rules were enacted supposedly to avoid government, taxpayer-funded bail-outs because they expose the total subservience of the state to banks and private sector power; but what the governments have done is even worse than a bail-out. They have empowered the banks to default on their obligations to individual customers in order to pay off their bets in the derivatives market.
So, instead of citizens’ taxes being used to bail-out the banks, the banks will now be able to use the money in citizens’ savings accounts