Liquidation as it pertains to banks

Economics Economics Questions
1

More from a layperson:

I understand the concept of liquidation and agree that it is a healthy component to the free market, profit/loss, risked based, etc. system of economics. In practice though I have a question: what does it mean to liquidate a bank? Wiping out shareholders is one thing but what about wiping out deposits? Does liquidition imply turning over the involvent deposits to the FDIC? Or, put another way, how can one support the concept of liquidation and not be terrified that his life savings will be wiped out? Wiping out a shareholder is one thing but wiping out an innocent bystander that put his money in a bank is another.

Thoughts?

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in liquidation, assets would be sold off, allowing the bank to settle with its creditors as much as possible. depositors in the bank are a major subset of these creditors. Their money is that more securely returned to them; rather than say…freezing everything in suspended animation and saying, we owe this depositor X, but he cant have it, as we dont have the money.