Even where direct losses to other banks were thought manageable, the failure of a large bank might strike panic into depositors, especially uninsured depositors, of other large institutions. The result might be a far-reaching run on the entire banking system that could, in a worst case such as occurred in early 1933, freeze the financial system completely.
Faced with either variant of such a devastating impact on the system, government authorities often believe they have little choice but to intervene. The government may provide funds or guarantees to the bank in order to keep it functioning.