Bank failure

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

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. 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.

Notable acquisitions of failed banks

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) Notes1999-11-29 National Westminster Bank Plc Royal Bank of Scotland 42.52003-10-27 FleetBoston Financial Bank of America 472004-01-15 Bank One Corporation JPMorgan Chase 582006-01-01 MBNA Bank of America 34.22007-05-20 Capitalia UniCredit 29.472007-09-28 NetBank ING Group 0.014 2008-02-22 Northern Rock Government of the United Kingdom 41.213 2008-04-01 Bear Stearns JPMorgan 2.2 2008-07-01 Countrywide Financial Bank of America 4 2008-07-10 Roskilde Bank Nationalbanken (Centralbank of Denmark) 15 2008-07-14 Alliance & Leicester Santander 1.93 2008-08-31 Dresdner Kleinwort Commerzbank 10.812 2008-09-07 Fannie Mae and Freddie Mac Federal Housing Finance Agency 5,000 Federal conservatorship with expected return to independent management 2008-09-14 Merrill Lynch Bank of America 44 2008-09-17 Lehman Brothers Barclays 1.3 2008-09-18 HBOS Lloyds TSB 33.475 2008-09-26 Lehman Brothers Nomura Holdings 1.3 Washington Mutual JPMorgan 1.9 2008-09-28 Bradford & Bingley Government of the United Kingdom Santander 1.838 Fortis BNP Paribas 12.356 2008-09-29 Abbey National Government of the United Kingdom Santander 2.298 2008-09-30 Dexia The Governments of Belgium, France and Luxembourg 7.06 2008-10-03 Wachovia Wells Fargo 15 ABN AMRO Fortis (Ministry of Finance )23.3Breakup, nationalization of some components with return to publicly traded company 2008-10-07 Landsbanki 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 Glitnir 3.254 2008-10-09 Kaupthing Bank 1.257 2008-10-13 Lloyds Banking Group Government of the United Kingdom 26.0452008 United Kingdom bank rescue package Royal Bank of Scotland Group 30.641 2008-10-14 Bank of America Federal government of the United States 45Troubled Asset Relief Program Bank of New York Mellon 3 Goldman Sachs 10 JPMorgan 25 Morgan Stanley 10 State Street 2 Wells Fargo 25 2009-02-11 Allied Irish Bank Government of the Republic of Ireland 3.861Post-2008 Irish banking crisis Anglo Irish Bank 13.57Anglo Irish Bank Corporation Act 2009 Bank of Ireland 3.861Post-2008 Irish banking crisis2009-03-19 IndyMac OneWest Bank unknown 2012-03-13 Alpha Bank Government of Greece 2.096Greek government-debt crisis Eurobank 4.633 National Bank of Greece 7.612 Piraeus Bank 5.516 2012-03-25 Laiki Bank Bank of Cyprus 10.8122012–2013 Cypriot financial crisis 2012-05-25 Bankia Government of Spain 20.9622008–2014 Spanish financial crisis 2012-06-07 Caixa Geral de Depositos Government of Portugal 1.782010–2014 Portuguese financial crisis Millennium BCP 3.3

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. 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.

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.

No advance notice is given to the public when a bank fails. 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. 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. An FDIC study of three bank failures in spring 2023 found that depositors with substantial uninsured funds were far more likely to run, while fully insured retail depositors generally did not run before the banks failed.

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.

Bank failure

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