A bank failure occurs when a bank is unable to meet its obligations to its depositors or other creditors because it has become insolvent or too illiquid to meet its liabilities. [1] A bank usually fails economically when the market value of its assets declines to a value that is less than the market value of its liabilities. The insolvent bank either borrows from other solvent banks or sells its assets at a lower price than its market value to generate liquid money to pay its depositors on demand. The inability of the solvent banks to lend liquid money to the insolvent bank creates a bank panic among the depositors as more depositors try to take out cash deposits from the bank. As such, the bank is unable to fulfill the demands of all of its depositors on time. A bank may be taken over by the regulating government agency if its shareholders' equity are below the regulatory minimum.
The failure of a bank is generally considered to be of more importance than the failure of other types of business firms because of the interconnectedness and fragility of banking institutions. Research has shown that the market value of customers of the failed banks is adversely affected at the date of the failure announcements. [2] It is often feared that the spill over effects of a failure of one bank can quickly spread throughout the economy and possibly result in the failure of other banks, whether or not those banks were solvent at the time as the marginal depositors try to take out cash deposits from these banks to avoid from suffering losses. Thereby, the spill over effect of bank panic or systemic risk has a multiplier effect on all banks and financial institutions leading to a greater effect of bank failure in the economy. As a result, banking institutions are typically subjected to rigorous regulation, and bank failures are of major public policy concern in countries across the world. [3]
![]() | This article may require cleanup to meet Wikipedia's quality standards. The specific problem is: Some transactions should not be included here; fill out "Type" column for verification.(March 2023) |
This list does not include partial purchases by governments to prevent bank or banking system failures, such as government intervention during the subprime mortgage crisis.
Announcement date | Target | Acquirer | Transaction value (US$ billion) | Type |
---|---|---|---|---|
1999-11-29 [4] | ![]() | ![]() | 42.5 | |
2003-10-27 [5] | ![]() | ![]() | 47 | |
2004-01-15 [6] | ![]() | ![]() | 58 | |
2006-01-01 [7] | ![]() | ![]() | 34.2 | |
2007-05-20 [8] | ![]() | ![]() | 29.47 | |
2007-09-28 [9] | ![]() | ![]() | 0.014 | |
2007-10-09 | ![]() | ![]() ![]() ![]() | 77.23[ dubious ] | Breakup, nationalization of some components with return to publicly traded company |
2008-02-22 | ![]() | ![]() | 41.213 | |
2008-04-01 | ![]() | ![]() | 2.2 | |
2008-07-01 | ![]() | ![]() | 4 | |
2008-07-14 | ![]() | ![]() | 1.93 | |
2008-08-31 | ![]() | ![]() | 10.812 | |
2008-09-07 | ![]() | ![]() | 5,000[ dubious ] | Federal conservatorship with expected return to independent management |
2008-09-14 | ![]() | ![]() | 44 | |
2008-09-17 | ![]() | ![]() | 1.3 | |
2008-09-18 | ![]() | ![]() | 33.475 | |
2008-09-26 | ![]() | ![]() | 1.3 | |
2008-09-26 | ![]() | ![]() | 1.9 | |
2008-09-28 | ![]() | ![]() ![]() | 1.838 | |
2008-09-28 | ![]() ![]() ![]() | ![]() | 12.356 | |
2008-09-29 | ![]() | ![]() ![]() | 2.298 | |
2008-09-30 | ![]() | ![]() ![]() ![]() | 7.06 | |
2008-10-03 | ![]() | ![]() | 15 | |
2008-10-07 | ![]() | ![]() | 4.192 | UK assets seized by UK government; bad assets nationalized by Iceland and retail operations reorganized as Landsbankinn |
2008-10-08 | ![]() | ![]() | 3.254 | |
2008-10-09 | ![]() | ![]() | 1.257 | |
2008-10-13 | ![]() | ![]() | 26.045 | |
2008-10-13 | ![]() | ![]() | 30.641 | |
2008-10-14 | ![]() | ![]() | 45 | |
2008-10-14 | ![]() | ![]() | 3 | |
2008-10-14 | ![]() | ![]() | 10 | |
2008-10-14 | ![]() | ![]() | 25 | |
2008-10-14 | ![]() | ![]() | 10 | |
2008-10-14 | ![]() | ![]() | 2 | |
2008-10-14 | ![]() | ![]() | 25 | |
2008-10-22 | ![]() | ![]() | 11.032 | |
2009-02-11 | ![]() | ![]() | 3.861 | |
2009-02-11 | ![]() | ![]() | 13.57 | |
2009-02-11 | ![]() | ![]() | 3.861 | |
2009-03-19 [10] | ![]() | ![]() | unknown | |
2012-03-13 | ![]() | ![]() | 2.096 | |
2012-03-13 | ![]() | ![]() | 4.633 | |
2012-03-13 | ![]() | ![]() | 7.612 | |
2012-03-13 | ![]() | ![]() | 5.516 | |
2012-03-25 | ![]() | ![]() | 10.812 | |
2012-05-25 | ![]() | ![]() | 20.962 | |
2012-06-07 | ![]() | ![]() | 1.78 | |
2012-06-07 | ![]() | ![]() | 3.3 | |
In the U.S., deposits in savings and checking accounts are backed by the FDIC. Currently, each account owner is insured up to $250,000 in the event of a bank failure. [11] When a bank fails, in addition to insuring the deposits, the FDIC acts as the receiver of the failed bank, taking control of the bank's assets and deciding how to settle its debts. The number of bank failures has been tracked and published by the FDIC since 1934, and has decreased after a peak in 2010 due to the financial crisis of 2007–2008. [12]
Since the year 2000, over 500 banks have failed. The 2010s saw the most bank failures in recent memory, with 367 banks collapsing over that decade. However, while the 2010s saw the most banks fail, it wasn't the worst decade in terms of the value of the banks going under. The 2000s saw 192 banks go under with $533 billion in assets ($749 billion in 2023 dollars) compared to the $273 billion ($354 billion) lost in the 2010s. [13]
No advance notice is given to the public when a bank fails. [1] Under ideal circumstances, a bank failure can occur without customers losing access to their funds at any point. For example, in the 2008 failure of Washington Mutual the FDIC was able to broker a deal in which JP Morgan Chase bought the assets of Washington Mutual for $1.9 billion. [14] Existing customers were immediately turned into JP Morgan Chase customers, without disruption in their ability to use their ATM cards or do banking at branches. [15] Such policies are designed to discourage bank runs that might cause economic damage on a wider scale.[ citation needed ]
The failure of a bank is relevant not only to the country in which it is headquartered, but for all other nations with which it conducts business. This dynamic was highlighted during the financial crisis of 2007–2008, when the failures of major bulge bracket investment banks affected local economies globally. This interconnectedness was manifested not on a high level, with respect to deals negotiated between major companies from different parts of the world, but also to the global nature of any one company's makeup. Outsourcing is a key example of this makeup; as major banks such as Lehman Brothers and Bear Stearns failed, the employees from countries other than the United States suffered in turn. A 2015 analysis by the Bank of England found greater interconnectedness between banks has led to a greater transmission of stresses during a time of recession. [16]
The Federal Deposit Insurance Corporation (FDIC) is a United States government corporation supplying deposit insurance to depositors in American commercial banks and savings banks. The FDIC was created by the Banking Act of 1933, enacted during the Great Depression to restore trust in the American banking system. More than one-third of banks failed in the years before the FDIC's creation, and bank runs were common. The insurance limit was initially US$2,500 per ownership category, and this has been increased several times over the years. Since the enactment of the Dodd–Frank Wall Street Reform and Consumer Protection Act in 2010, the FDIC insures deposits in member banks up to $250,000 per ownership category. FDIC insurance is backed by the full faith and credit of the government of the United States, and according to the FDIC, "since its start in 1933 no depositor has ever lost a penny of FDIC-insured funds".
In the United States, banking had begun by the 1780s, along with the country's founding. It has developed into a highly influential and complex system of banking and financial services. Anchored by New York City and Wall Street, it is centered on various financial services, such as private banking, asset management, and deposit security.
A bank run or run on the bank occurs when many clients withdraw their money from a bank, because they believe the bank may fail in the near future. In other words, it is when, in a fractional-reserve banking system, numerous customers withdraw cash from deposit accounts with a financial institution at the same time because they believe that the financial institution is, or might become, insolvent. When they transfer funds to another institution, it may be characterized as a capital flight. As a bank run progresses, it may become a self-fulfilling prophecy: as more people withdraw cash, the likelihood of default increases, triggering further withdrawals. This can destabilize the bank to the point where it runs out of cash and thus faces sudden bankruptcy. To combat a bank run, a bank may acquire more cash from other banks or from the central bank, or limit the amount of cash customers may withdraw, either by imposing a hard limit or by scheduling quick deliveries of cash, encouraging high-return term deposits to reduce on-demand withdrawals or suspending withdrawals altogether.
The savings and loan crisis of the 1980s and 1990s was the failure of 32% of savings and loan associations (S&Ls) in the United States from 1986 to 1995. An S&L or "thrift" is a financial institution that accepts savings deposits and makes mortgage, car and other personal loans to individual members.
A bailout is the provision of financial help to a corporation or country which otherwise would be on the brink of bankruptcy. A bailout differs from the term bail-in under which the bondholders or depositors of global systemically important financial institutions (G-SIFIs) are forced to participate in the recapitalization process but taxpayers are not. Some governments also have the power to participate in the insolvency process; for instance, the U.S. government intervened in the General Motors bailout of 2009–2013. A bailout can, but does not necessarily, avoid an insolvency process. The term bailout is maritime in origin and describes the act of removing water from a sinking vessel using a bucket.
Deposit insurance or deposit protection is a measure implemented in many countries to protect bank depositors, in full or in part, from losses caused by a bank's inability to pay its debts when due. Deposit insurance systems are one component of a financial system safety net that promotes financial stability.
The Continental Illinois National Bank and Trust Company was at one time the seventh-largest commercial bank in the United States as measured by deposits, with approximately $40 billion in assets. In 1984, Continental Illinois became the largest ever bank failure in U.S. history, when a run on the bank led to its seizure by the Federal Deposit Insurance Corporation (FDIC). Continental Illinois retained this dubious distinction until the failure of Washington Mutual in 2008 during the financial crisis of 2008, which ended up being over seven times larger than the failure of Continental Illinois.
The Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA), is a United States federal law enacted in the wake of the savings and loan crisis of the 1980s.
IndyMac, a contraction of Independent National Mortgage Corporation, was an American bank based in California that failed in 2008 and was seized by the United States Federal Deposit Insurance Corporation (FDIC).
The Korea Deposit Insurance Corporation (KDIC) is a South Korean deposit insurance corporation, established in 1996 to protect depositors and maintain the stability of the financial system. The main functions of KDIC are insurance management, risk surveillance, resolution, recovery, and investigation.
"Too big to fail" (TBTF) is a theory in banking and finance that asserts that certain corporations, particularly financial institutions, are so large and so interconnected that their failure would be disastrous to the greater economic system, and therefore should be supported by government when they face potential failure. The colloquial term "too big to fail" was popularized by U.S. Congressman Stewart McKinney in a 1984 Congressional hearing, discussing the Federal Deposit Insurance Corporation's intervention with Continental Illinois. The term had previously been used occasionally in the press, and similar thinking had motivated earlier bank bailouts.
Corus Bankshares, Inc. operated as the holding company for Corus Bank, N.A., a United States company that offered consumer and corporate banking products and services.
The Panic of 1930 was a financial crisis that occurred in the United States which led to a severe decline in the money supply during a period of declining economic activity. A series of bank failures from agricultural areas during this time period sparked panic among depositors which led to widespread bank runs across the country.
A systemically important financial institution (SIFI) is a bank, insurance company, or other financial institution whose failure might trigger a financial crisis. They are colloquially referred to as "too big to fail".
Silicon Valley Bank (SVB) is a commercial bank division of First Citizens BancShares. The bank was previously the primary subsidiary of SVB Financial Group, a publicly traded bank holding company that had offices in 15 U.S. states and over a dozen international jurisdictions.
Signature Bank was an American full-service commercial bank headquartered in New York City and with 40 private client offices in the states of New York, Connecticut, California, Nevada, and North Carolina. In addition to banking products, specialty national businesses provided services specific to industries such as commercial real estate, private equity, mortgage servicing, and venture banking; subsidiaries of the bank provided equipment financing and investment services. At the end of 2022, the bank had total assets of US$110.4 billion and deposits of $82.6 billion; as of 2021, it had loans of $65.25 billion.
The 2023 United States banking crisis was a series of bank failures and bankruptcies that took place in early 2023, with the United States federal government ultimately intervening in several ways. Over the course of five days in March 2023, three small-to-mid size U.S. banks failed, triggering a sharp decline in global bank stock prices and swift response by regulators to prevent potential global contagion. Silicon Valley Bank (SVB) failed when a bank run was triggered after it sold its Treasury bond portfolio at a large loss, causing depositor concerns about the bank's liquidity. The bonds had lost significant value as market interest rates rose after the bank had shifted its portfolio to longer-maturity bonds. The bank's clientele was primarily technology companies and wealthy individuals holding large deposits, but balances exceeding $250,000 were not insured by the Federal Deposit Insurance Corporation (FDIC). Silvergate Bank and Signature Bank, both with significant exposure to cryptocurrency, failed in the midst of turbulence in that market.