Since the establishment of the FDIC in 1934, there have been 3,516 bank failures in the United States. Most of them are small banks and go largely unnoticed, except if you happen to have deposits at that institution.
However, the 2023 collapses of Silicon Valley Bank and Signature Bank have prompted calls for regulatory revisions – largely because a significant percentage of deposits held there were not insured by the FDIC.
This article will examine several major bank failures in U.S. history, the key reasons for their failure and their impact on the financial sector.
Key Takeaways
- Since the establishment of the Federal Deposit Insurance Corporation (FDIC) in 1934, there have been 3,516 bank failures in the United States.
- Washington Mutual’s failure in 2008, during the financial crisis, is the largest in the country’s history. It stemmed from the bank’s risky mortgage lending practices.
- Even more recently were the failures of Silicon Valley Bank and Signature Bank in 2023. These niche banks with large amounts of uninsured deposits have led federal regulators to look at additional regulatory practices to help keep financial systems stable.
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Largest Bank Failures
Failure occurs when a bank can’t meet its financial obligations due to assets and cash reserves being nearly depleted. Essentially, the bank does not have enough money to cover costs and liabilities.
The FDIC then shuts the bank down, aiming to ensure that customers have continuous access to their deposits. Bank deposits are typically insured by the FDIC up to $250,000 per customer, meaning people with less than that amount in a single account aren’t at risk of losing money.
This bank takeover process aims to maintain stability within the financial system.
The FDIC’s full list of bank failures is mostly made up of small banks. However, here are the largest bank failures in U.S. history.
| Institution Name | Failure Date | Total Assets |
|---|---|---|
| Washington Mutual Bank | 9/25/2008 | $307,021,614 |
| First Republic Bank | 5/1/2023 | $212,638,872 |
| Silicon Valley Bank | 3/7/2023 | $209,026,000 |
| Signature Bank | 3/12/2023 | $110,363,650 |
| IndyMac Bank | 7/11/2008 | $30,698,512 |
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Notable Bank Failures in U.S. History
Large bank failures in U.S. history, such as Washington Mutual in 2008 and Continental Illinois in 1984, have been pivotal moments that reshaped the financial landscape and regulatory environment.
These events highlight the vulnerabilities within the banking sector and the critical role of federal oversight and insurance mechanisms in maintaining systemic stability and protecting depositors.
Washington Mutual Failure
The collapse of Washington Mutual (WaMu) in 2008 stands out as the largest bank failure in U.S. history, according to the FDIC. When regulators seized it, WaMu had more than $300 billion in assets and $188 billion in deposits, making it the sixth-largest U.S. bank.
The collapse was even more notable because WaMu had a significant national presence, with over 2,200 branches across 15 states. Its failure marked one of the most striking examples of the financial crisis impacting a large and visible retail bank used by millions of Americans.
Why did Washington Mutual Fail?
WaMu failed primarily due to its aggressive pursuit of risky and subprime mortgages in the lead-up to the 2008 financial crisis. This left it vulnerable when housing prices declined. WaMu retained many of these toxic loans on its books rather than selling them off, resulting in billions in losses as borrowers defaulted.
The mounting mortgage defaults decimated WaMu’s creditworthiness and depleted its capital reserves. A bank run ensued as customers feared WaMu could collapse, resulting in $16 billion in deposits being withdrawn over ten days in September 2008.
Impact of Failure
The FDIC placed WaMu into receivership on September 25, 2008. WaMu’s collapse sent shockwaves through the financial sector and intensified the unfolding financial crisis. The collapse also drained consumer confidence and caused them to question the stability of other banks.
To prevent further disruption to the banking industry, the FDIC held a quick auction to sell WaMu. JPMorgan Chase was the winning bidder with a bid of $1.9 billion and took over bank operations the next day.
First Republic Bank Failure
The collapse of First Republic Bank (FRB) in 2023, following Silicon Valley Bank’s and Signature Bank’s failures, marked America’s second-largest bank failure.
Why did First Republic Bank Fail?
FRB’s vulnerability was due to its reliance on uninsured deposits, which constituted 64% of its assets, according to the FDIC. The bank’s business model catered to high net-worth individuals with preferential loan rates. This vulnerability was exposed when the Federal Reserve raised interest rates, leading to significant paper losses in its investment portfolio.
The bank’s downfall was accelerated by a loss of depositor confidence, an FDIC report said, leading to a bank run. Despite intervention from major banks, FRB couldn’t recover. The FDIC highlighted issues like rapid growth and inadequate risk management, leading to recommendations for improved regulatory oversight.
Impact of Failure
After the failure of FRB, JPMorgan Chase purchased the majority of assets and assumed the deposits and other liabilities of FRB from the FDIC. As a result of FRB’s failure, the FDIC’s Office of Inspector General recommended significant changes to how the agency supervises banks and prevent similar failures in the future.
IndyMac Bank Failure
IndyMac Bank — formerly known as Countrywide Mortgage — was the fifth-largest bank failure in U.S. history. IndyMac was one of the largest independent mortgage lenders in the U.S. at the time, according to the company’s SEC filings. The Office of Thrift Supervision (OTS) closed IndyMac on July 11, 2008.
Why did IndyMac Bank Fail?
The failure of IndyMac Bank was primarily caused by its aggressive growth strategy, focusing heavily on subprime mortgages. When the housing bubble burst and property values plummeted, IndyMac’s portfolio suffered significant losses. With the declining real estate market, IndyMac faced a liquidity crisis because it was left holding a substantial amount of loans it could not sell.
In addition, IndyMac relied heavily on brokered deposits for its funding, according to a report from the North Carolina Banking Institute. A public letter from U.S. Charles Schumer (D-NY) raised concerns about this reliance. Two days after Schumer’s letter went public, there was a run on the bank’s deposits, with approximately $100 million in withdrawals. John Reich, the Director of the OTS, blamed Schumer for IndyMac’s failure.
Impact of Failure
IndyMac’s failure put a significant financial strain on the FDIC, marking the most expensive failure for the FDIC at the time, according to the Brookings Institute. In total, the failure cost the Deposit Insurance Fund $12.8 billion.
The collapse of IndyMac led to increased scrutiny of banking practices, particularly in mortgage lending and risk management. It also prompted the FDIC to take measures to strengthen the banking system, including changes in regulation and oversight to prevent similar failures.
Continental Illinois National Bank and Trust Failure
Continental Illinois, established during the Civil War, became one of the largest banks in U.S. history by the 1980s. Continental Illinois’ doors technically never closed, but regulators thought it would become insolvent without assistance from the federal government, leading the FDIC to buy billions in bad loans from the bank.
Why did Continental Illinois National Bank and Trust Fail?
Its downfall began with aggressive growth strategies, focusing on corporate lending and participation in national and international loan markets, according to an FDIC report. The bank’s near collapse was primarily due to massive loan losses, particularly in the gas and oil sectors.
A 10-day run on the bank ensued in May of 1984 amid talk that Continental Illinois was in trouble. During the run, the bank lost approximately 30% of its funding. To stop the run and calm creditors’ fears, the FDIC stepped in with an assistance program, guaranteeing all of the bank’s creditors. The FDIC lent Continental $2 billion. Months later, the FDIC took over 80% ownership of the bank and fired its top management.
Impact of Failure
The FDIC determined Continental Illinois was “too big to fail” and needed a bailout to prevent systemic risks, according to the FDIC report. Federal regulators were concerned the failure of a major bank like Continental Illinois would significantly impact the financial sector. There was a lot of criticism when the FDIC bailed out the bank as there was concern it would set a precedent for future bailouts.
>> Related: Learn more about the largest banks in the U.S.
Recent Bank Failures
The following table highlights FDIC-insured bank failures from 2010 to 2023, showing a peak in 2010 due to the fallout from the 2008 financial crisis. Failures declined significantly post-recession, with no failures from 2018 to 2021, reflecting improved banking conditions and regulatory reforms. Recent years have seen a slight increase in failures, but they remain low historically.
| Year | Bank Failures* |
|---|---|
| 2023 | 5 |
| 2022 | 0 |
| 2021 | 0 |
| 2020 | 4 |
| 2019 | 4 |
| 2018 | 0 |
| 2017 | 8 |
| 2016 | 5 |
| 2015 | 8 |
| 2014 | 18 |
| 2013 | 24 |
| 2012 | 51 |
| 2011 | 92 |
| 2010 | 157 |
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Bank Failures in 2023
In addition to the collapse of First Republic Bank, discussed above, two other major banks collapsed in 2023.
Silicon Valley Bank Failure
The collapse of Silicon Valley Bank (SVB) in San Francisco on March 10, 2023, stands out due to its rapid fallout and the significant impact on the tech and startup industry. At the time, it was the second-largest bank failure in U.S. history since the 2008 financial crisis.
Why did Silicon Valley Bank Fail?
The failure was brought on by a combination of poor risk management and aggressive growth strategies, according to a report from professor Richard Warr of N.C. State University’s Poole College of Management.
To put it simply, the bank invested a lot of its depositors’ money in long-term Treasury bonds that carried low interest rates. As rates began to rise, these bonds diminished in value – and SVB could not cover withdrawals once customers started to remove their money from the bank.
To add to the challenges of SVB’s failure, the bank had many high-value depositors, resulting in approximately 90% of its total deposits being uninsured. The high proportion of uninsured deposits contributed significantly to the bank’s vulnerability and the panic leading to its failure.
Impact of Failure
This event sent shockwaves through the financial sector, prompting regulatory scrutiny and raising questions about the resilience and oversight of niche banks, ultimately leading to increased caution among investors and depositors across the banking industry.
Signature Bank Failure
The collapse of Signature Bank in New York occurred within days of SVB’s failure. It was remarkable for its size and the speed at which it unfolded.
Like SVB, Signature Bank also had a large percentage of uninsured deposits. According to the FDIC, uninsured deposits ranged from 63% to 82%. Large amounts of uninsured deposits can be risky for banks because they increase the likelihood of rapid, large-scale withdrawals if depositors lose confidence in the bank’s stability. If banks don’t have enough cash on hand to cover these withdrawals, as with Signature Bank, it can lead to a run on the bank.
Why did Signature Bank Fail?
Its failure was largely due to a sudden loss of depositor confidence exacerbated by its significant involvement in the unstable cryptocurrency market. The FDIC also cites Signature Bank’s rapid growth model and poor management as additional causes of the bank’s collapse.
Impact of Failure
As a result of the failures of SVB and Signature Banks, the Federal Reserve introduced the Bank Term Funding Program (BTFP). The program was designed to support banks with liquidity issues by allowing them to borrow money against their assets, such as U.S. Treasuries. This initiative aimed to prevent bank runs by ensuring banks could meet depositor demands, stabilizing the financial system during periods of stress. The BTFP is set to expire in March 2024.
>> Related: Learn more about FDIC insurance
The Bottom Line: Insights for the Future
Since 2001, there have been 566 bank failures, with a significant spike during the 2008 financial crisis and ensuing Great Recession. Key causes of bank failures are undercapitalization, real estate lending vulnerabilities, interconnectedness allowing the crisis to spread, lack of diversification and rapid growth.
The financial crisis that began in 2008 led to the enactment of the Dodd-Frank Act, which was implemented to have greater oversight and consumer protections.
FAQ: Failed Banks in the U.S.
The largest bank failures in U.S. history were Washington Mutual, First Republic Bank and Silicon Valley Bank.
If your bank is insured by the FDIC, your deposits are safe up to $250,000 per depositor, per insured bank. The vast majority of customers are fully protected thanks to modern bank resolution practices and robust federal deposit insurance backstops.
Historically, small banks are more likely to fail than large banks because they concentrate on regional lending, have fewer revenue streams to diversify risk and possess less capital to absorb losses. However, robust regulatory oversight and FDIC insurance help mitigate the risk to depositors.
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