In a market economy, banking regulation and supervision cannot, and should not, prevent each and every bank or credit union (“credit institution”) from failing. To ensure that any such termination of a credit institution’s activity has a minimal impact, especially on small clients, deposits are insured under a deposit guarantee scheme governed by the Act on Banks (pdf, 652 kB). Deposit insurance serves two main functions: a preventive function (by reducing the risk of a run on credit institutions if negative information about a credit institution’s financial situation, whether true or false, spreads) and a compensatory function for depositors. As from 1 January 2016, compensation for insured deposits is paid by the Financial Market Guarantee System, which administers the Deposit Insurance Fund.
Details about the deposit guarantee scheme in the Czech Republic can be found in the answer to the question How are bank and credit union deposits insured in the Czech Republic? and on the website of the Financial Market Guarantee System https://www.garancnisystem.cz/en/.