Bank failure

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Depositors "run" on a failing New York City bank in an effort to recover their money, July 1914

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] Failing banks share commonalities: rising asset losses, deteriorating solvency, and an increasing reliance on expensive noncore funding.[2]

A bank typically fails economically when the market value of its assets falls below 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.[3] 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.[4]

Notable acquisitions of failed banks

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The following table lists significant acquisitions of failed banks, illustrating the scale and impact of major bank failures. It 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) 		Notes
1999-11-29[5] Template:Flagicon National Westminster Bank Plc Template:Flagicon Royal Bank of Scotland 42.5
2003-10-27[6] Template:Flagicon FleetBoston Financial Template:Flagicon Bank of America 47
2004-01-15[7] Template:Flagicon Bank One Corporation Template:Flagicon JPMorgan Chase 58
2006-01-01[8] Template:Flagicon MBNA Template:Flagicon Bank of America 34.2
2007-05-20[9] Template:Flagicon Capitalia Template:Flagicon UniCredit 29.47
2007-09-28[10] Template:Flagicon NetBank Template:Flagicon ING Group 0.014
2008-02-22 Template:Flagicon Northern Rock Template:Flagicon Government of the United Kingdom 41.213
2008-04-01 Template:Flagicon Bear Stearns Template:Flagicon JPMorgan 2.2
2008-07-01 Template:Flagicon Countrywide Financial Template:Flagicon Bank of America 4
2008-07-10 Template:Flagicon Roskilde Bank Template:Flagicon Nationalbanken (Centralbank of Denmark) 15
2008-07-14 Template:Flagicon Alliance & Leicester Template:Flagicon Santander 1.93
2008-08-31 Template:Flagicon Dresdner Kleinwort Template:Flagicon Commerzbank 10.812
2008-09-07 Template:Flagicon Fannie Mae and Freddie Mac Template:Flagicon Federal Housing Finance Agency 5,000[dubious – discuss] Federal conservatorship with expected return to independent management
2008-09-14 Template:Flagicon Merrill Lynch Template:Flagicon Bank of America 44
2008-09-17 Template:Flagicon Lehman Brothers Template:Flagicon Barclays 1.3
2008-09-18 Template:Flagicon HBOS Template:Flagicon Lloyds TSB 33.475
2008-09-26 Template:Flagicon Lehman Brothers Template:Flagicon Nomura Holdings 1.3
Template:Flagicon Washington Mutual Template:Flagicon JPMorgan 1.9
2008-09-28 Template:Flagicon Bradford & Bingley Template:Flagicon Government of the United Kingdom Template:Flagicon Santander 1.838
Template:Flagicon Template:Flagicon Template:Flagicon Fortis Template:Flagicon BNP Paribas 12.356
2008-09-29 Template:Flagicon Abbey National Template:Flagicon Government of the United Kingdom Template:Flagicon Santander 2.298
2008-09-30 Template:Flagicon Dexia Template:Flagicon Template:Flagicon Template:Flagicon The Governments of Belgium, France and Luxembourg 7.06
2008-10-03 Template:Flagicon Wachovia Template:Flagicon Wells Fargo 15
Template:Flagicon ABN AMRO

Template:Flagicon Fortis

Template:Flagicon NL Financial Investments [nl] (Ministry of Finance ) 23.3[11] Breakup, nationalization of some components with return to publicly traded company[12]
2008-10-07 Template:Flagicon Landsbanki Template:Flagicon Icelandic Financial Supervisory Authority 4.192 UK assets seized by UK government; bad assets nationalized by Iceland and retail operations reorganized as Landsbankinn
2008-10-08 Template:Flagicon Glitnir 3.254
2008-10-09 Template:Flagicon Kaupthing Bank 1.257
2008-10-13 Template:Flagicon Lloyds Banking Group Template:Flagicon Government of the United Kingdom 26.045 2008 United Kingdom bank rescue package
Template:Flagicon Royal Bank of Scotland Group 30.641
2008-10-14 Template:Flagicon Bank of America Template:Flagicon Federal government of the United States 45 Troubled Asset Relief Program
Template:Flagicon Bank of New York Mellon 3
Template:Flagicon Goldman Sachs 10
Template:Flagicon JPMorgan 25
Template:Flagicon Morgan Stanley 10
Template:Flagicon State Street 2
Template:Flagicon Wells Fargo 25
2009-02-11 Template:Flagicon Allied Irish Bank Template:Flagicon Government of the Republic of Ireland 3.861 Post-2008 Irish banking crisis
Template:Flagicon Anglo Irish Bank 13.57 Anglo Irish Bank Corporation Act 2009
Template:Flagicon Bank of Ireland 3.861 Post-2008 Irish banking crisis
2009-03-19[13] Template:Flagicon IndyMac Template:Flagicon OneWest Bank unknown
2012-03-13 Template:Flagicon Alpha Bank Template:Flagicon Government of Greece 2.096 Greek government-debt crisis
Template:Flagicon Eurobank 4.633
Template:Flagicon National Bank of Greece 7.612
Template:Flagicon Piraeus Bank 5.516
2012-03-25 Template:Flagicon Laiki Bank Template:Flagicon Bank of Cyprus 10.812 2012–2013 Cypriot financial crisis
2012-05-25 Template:Flagicon Bankia Template:Flagicon Government of Spain 20.962 2008–2014 Spanish financial crisis
2012-06-07 Template:Flagicon Caixa Geral de Depositos Template:Flagicon Government of Portugal 1.78 2010–2014 Portuguese financial crisis
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Bank failures in the U.S.

In the U.S., deposits in savings and checking accounts are backed by the FDIC. As of 1933, each account owner is insured up to $250,000 in the event of a bank failure.[14] 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 2008 financial crisis.[15]

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.[16]

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.[17] 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.[18] Such policies are designed to discourage bank runs that might cause economic damage on a wider scale.[citation needed] Script error: No such module "labelled list hatnote".

Global failure

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 2008 financial crisis, 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.[19]

See also

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References

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  1. ^ a b Page Module:Citation/CS1/styles.css has no content."When a Bank Fails – Facts for Depositors, Creditors, and Borrowers". Federal Deposit Insurance Corporation.
  2. ^ Page Module:Citation/CS1/styles.css has no content.Correia, Sergio; Luck, Stephan; Verner, Emil (2025). "Failing Banks". The Quarterly Journal of Economics. arXiv:2506.06082. doi:10.1093/qje/qjaf044. ISSN 0033-5533.
  3. ^ Page Module:Citation/CS1/styles.css has no content.Brewer III, Elijah; Genay, Hesna; Hunter, William Curt; Kaufman, George G. (August 26, 2002). "The Value of Banking Relationships During a Financial Crisis: Evidence from Failures of Japanese Banks" (PDF). Federal Reserve Bank of Chicago. Archived (PDF) from the original on December 25, 2016. Retrieved May 14, 2021.
  4. ^ Page Module:Citation/CS1/styles.css has no content."Bank Failures, Systemic Risk, and Bank Regulation" (PDF). The Cato Institute. Spring 1996. Archived from the original on December 8, 2008.
  5. ^ Page Module:Citation/CS1/styles.css has no content."RBS launches $43B bid for NatWest – Nov. 29, 1999". money.cnn.com. Archived from the original on June 19, 2002. Retrieved May 14, 2021.
  6. ^ Page Module:Citation/CS1/styles.css has no content."Bank of America to acquire FleetBoston for $47B – Oct. 27, 2003". CNN. October 27, 2003. Archived from the original on October 28, 2003.
  7. ^ Page Module:Citation/CS1/styles.css has no content."J.P. Morgan to buy Bank One for $58 billion – Jan. 15, 2004". CNN. January 15, 2004. Archived from the original on February 2, 2004.
  8. ^ Page Module:Citation/CS1/styles.css has no content."Bank Of America Acquires MBNA". CBS News. Associated Press. January 1, 2006.
  9. ^ Page Module:Citation/CS1/styles.css has no content.Biondi, Paolo; Sisto, Alberto (May 20, 2007). "UniCredit agrees to buy Capitalia in $29 bln deal". Reuters. Retrieved May 14, 2021.
  10. ^ Page Module:Citation/CS1/styles.css has no content.Wilchins, Dan (September 28, 2007). "ING Bank to acquire NetBank deposits". Reuters. Retrieved May 14, 2021.
  11. ^ Page Module:Citation/CS1/styles.css has no content.Schwartz, Nelson D. (October 3, 2008). "Dutch government nationalizes Fortis' operations in the Netherlands". The New York Times. ISSN 0362-4331. Retrieved July 23, 2025.
  12. ^ Page Module:Citation/CS1/styles.css has no content."Het einde voor ABN Amro als staatsbank is in zicht". RTL.nl (in Nederlands). May 22, 2015. Retrieved July 23, 2025.
  13. ^ Page Module:Citation/CS1/styles.css has no content."OneWest completes acquisition of Indymac Assets". Reuters. March 20, 2009. Retrieved May 14, 2021.
  14. ^ Page Module:Citation/CS1/styles.css has no content."Deposit Insurance FAQs". Federal Deposit Insurance Corporation.
  15. ^ Page Module:Citation/CS1/styles.css has no content."FDIC | Failed Bank List". Federal Deposit Insurance Corporation.
  16. ^ Page Module:Citation/CS1/styles.css has no content.Laycock, Richard (May 11, 2023). "List of bank failures: 2000 to 2023 | Finder". finder.com. Retrieved May 12, 2023.
  17. ^ Page Module:Citation/CS1/styles.css has no content.Ellis, David; Sahadi, Jeanne (September 26, 2008). "JPMorgan buys WaMu". CNN. Archived from the original on September 29, 2008.
  18. ^ Page Module:Citation/CS1/styles.css has no content."OTS 08-046 – Washington Mutual Acquired by JPMorgan Chase". Office of Thrift Supervision. September 25, 2008. Archived from the original on January 15, 2009.
  19. ^ Page Module:Citation/CS1/styles.css has no content.Zijun, Liu; Quiet, Stephanie; Roth, Benedict (2015). "Banking sector interconnectedness: what is it, how can we measure it and why does it matter?" (PDF). Bank of England. Archived (PDF) from the original on October 5, 2021.

Further reading

  • Calomiris, Charles W., and Joseph R. Mason. "Fundamentals, panics, and bank distress during the depression." American Economic Review (2003): 1615–1647. online
  • Carlson, Mark. "Causes of bank suspensions in the panic of 1893." Explorations in Economic History 42.1 (2005): 56–80. online
  • Wicker, Elmus. The banking panics of the Great Depression (2000). Template:ISBN.
  • Wicker, Elmus. Banking panics of the gilded age (2006).
  • Wicker, Elmus. "A Reconsideration of the Causes of the Banking Panic of 1930." Journal of Economic History 40.03 (1980): 571–583.

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