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| Bank failures in the United States | |
|---|---|
| Name | Bank failures in the United States |
| Date | Various |
| Location | United States |
| Type | Financial institution failure |
Bank failures in the United States are episodes in which federally insured or state-chartered depository institutions become insolvent, collapse, or are closed by regulators, often triggering interventions by entities such as the Federal Deposit Insurance Corporation, the Federal Reserve System, and the Treasury Department. These failures have occurred throughout U.S. history from the Panic of 1819 and the Panic of 1837 through the Great Depression and the Savings and Loan crisis to the Financial crisis of 2007–2008 and the 2023 banking crisis, producing regulatory reforms such as the Glass–Steagall Act and the Dodd–Frank Act. High-profile failures like Continental Illinois National Bank and Trust Company, Washington Mutual, Lehman Brothers (as an investment bank linked to broader systemic stress), and Silicon Valley Bank illustrate recurring themes of risk, contagion, and policy response by institutions like the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency.
Bank failure denotes formal insolvency, closure, or receivership of a depository institution by authorities such as the Federal Deposit Insurance Corporation, state banking departments, or the Office of the Comptroller of the Currency. Related legal and operational concepts include receivership invoked under the Federal Deposit Insurance Act, conservatorship as used in Federal Housing Finance Agency interventions in the 2008 financial crisis, and resolution authority established under the Dodd–Frank Act and enacted via entities like the Financial Stability Oversight Council. Distinctions are drawn among commercial banks such as JPMorgan Chase, Bank of America, Wells Fargo, and community banks insured by the Federal Deposit Insurance Corporation versus investment banks exemplified by Goldman Sachs and Bear Stearns prior to regulatory changes.
Major episodes include the early 19th-century panics culminating in the Panic of 1837 and the bank suspensions that preceded the establishment of the National Banking Act and the Federal Reserve System. The Panic of 1907 led to private interventions by J.P. Morgan and the eventual creation of the Federal Reserve System. The Great Depression featured mass bank failures prompting the Emergency Banking Act and creation of the Federal Deposit Insurance Corporation. The Savings and Loan crisis of the 1980s and 1990s produced closures and seizures by the Resolution Trust Corporation and reforms like the Financial Institutions Reform, Recovery, and Enforcement Act of 1989. The Financial crisis of 2007–2008 led to the failure of Washington Mutual, the rescue of Citigroup and Bank of America acquisitions, and the bankruptcy of Lehman Brothers, followed by the Dodd–Frank Act reforms. Recent episodes include failures of Silicon Valley Bank, Signature Bank, and First Republic Bank during the 2023 banking crisis, invoking actions by the Federal Deposit Insurance Corporation and the Federal Reserve System.
Common proximate causes involve asset–liability mismatches, interest rate risk as modeled in Macaulay duration frameworks, credit underwriting failures seen in subprime mortgage lending, and liquidity runs akin to episodes chronicled in the Lender of Last Resort literature. Structural contributors include inadequate capital standards pre-dating Basel III, concentration risks in sectors exemplified by commercial real estate and technology startups, governance failures at institutions like Lehman Brothers and Washington Mutual, and contagion dynamics documented during the 2008 financial crisis and the 2023 banking crisis. External shocks such as the COVID-19 pandemic and rapid shifts in monetary policy by the Federal Reserve can exacerbate vulnerabilities.
The regulatory apparatus involves federal agencies including the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, the Federal Reserve System, the Consumer Financial Protection Bureau, and state banking authorities coordinated via the Conference of State Bank Supervisors. Legislative responses have included the Glass–Steagall Act, Depository Institutions Deregulation and Monetary Control Act, Financial Institutions Reform, Recovery, and Enforcement Act of 1989, and the Dodd–Frank Act, each altering supervision, capital requirements, and resolution authority. Crisis-era interventions have relied on tools such as emergency lending programs from the Federal Reserve (e.g., the Primary Dealer Credit Facility and Term Asset-Backed Securities Loan Facility), capital injections under the Troubled Asset Relief Program, and receiver actions by the Federal Deposit Insurance Corporation.
Bank failures can precipitate contractions in credit intermediation affecting corporations like General Motors and sectors such as housing and small business lending, with macroeconomic transmission to indicators tracked by the Bureau of Economic Analysis and the Federal Reserve Board of Governors. Systemic collapses have produced recessions as in the Great Depression and the Great Recession, while localized failures have imposed losses on uninsured depositors, shareholders, and bondholders, and have triggered fiscal costs exemplified by the Resolution Trust Corporation expenditures. Contagion concerns drive market reactions in institutions traded on exchanges like the New York Stock Exchange and influence policy debates involving the Financial Stability Oversight Council.
Resolution frameworks center on the Federal Deposit Insurance Corporation's receivership powers, the Orderly Liquidation Authority created by the Dodd–Frank Act, and depositor protections via the Federal Deposit Insurance Corporation. Deposit insurance limits and temporary measures—such as full deposit guarantees used in crises—affect incentives for institutions like Credit Suisse in cross-border contexts and have parallels in international frameworks set by the Bank for International Settlements and Basel Committee on Banking Supervision. Resolution tools include purchase-and-assumption transactions, asset guarantees, shared-loss arrangements, and bridge banks employed in cases like Continental Illinois and Washington Mutual.
Preventive measures emphasize enhanced supervision, capital and liquidity standards under Basel III and Basel IV proposals, stress testing by the Federal Reserve, enhanced prudential standards for systemically important financial institutions designated by the Financial Stability Oversight Council, and consumer protections advanced by the Consumer Financial Protection Bureau. Reform initiatives debated after major episodes include proposals to reinstate aspects of the Glass–Steagall Act, to modify the Dodd–Frank Act provisions on resolution and stress testing, and to strengthen state–federal coordination via the Conference of State Bank Supervisors and the Federal Financial Institutions Examination Council. Lessons from crises implicate governance reforms at banks such as JPMorgan Chase and Wells Fargo and underscore the role of market discipline, supervisory oversight, and contingency planning.
Category:Bank failures