Abank failure occurs when a bank is unable to meet its obligations to itsdepositors or othercreditors 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 themarket value of itsassets falls below the market value of itsliabilities. Theinsolvent bank either borrows from othersolvent 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 abank 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 itsshareholders' 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 weresolvent 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 orsystemic risk has amultiplier effect on all banks andfinancial institutions leading to a greater effect of bank failure in the economy. As a result, banking institutions are typically subjected to rigorousregulation, and bank failures are of majorpublic policy concern in countries across the world.[4]
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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 asgovernment intervention during the subprime mortgage crisis:
| Announcement date | Target | Acquirer | Transaction value (US$ billion) | Type |
|---|---|---|---|---|
| 1999-11-29[5] |  National Westminster Bank Plc |  Royal Bank of Scotland | 42.5 | |
| 2003-10-27[6] |  FleetBoston Financial | Bank of America | 47 | |
| 2004-01-15[7] | Bank One Corporation | JPMorgan Chase | 58 | |
| 2006-01-01[8] | MBNA | Bank of America | 34.2 | |
| 2007-05-20[9] |  Capitalia | UniCredit | 29.47 | |
| 2007-09-28[10] | 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 andFreddie Mac | Federal Housing Finance Agency | 5,000[dubious –discuss] | 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 | |
| 2008-09-26 | Washington Mutual | JPMorgan | 1.9 | |
| 2008-09-28 | Bradford & Bingley | Government of the United Kingdom Santander | 1.838 | |
| 2008-09-28 |   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 | |
| 2008-10-03 | ABN AMRO | 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 |  Landsbanki | Icelandic Financial Supervisory Authority | 4.192 | UK assetsseized by UK government; bad assets nationalized by Iceland and retail operations reorganized asLandsbankinn |
| 2008-10-08 | Glitnir | Icelandic Financial Supervisory Authority | 3.254 | |
| 2008-10-09 | Kaupthing Bank | Icelandic Financial Supervisory Authority | 1.257 | |
| 2008-10-13 | Lloyds Banking Group | Government of the United Kingdom | 26.045 | |
| 2008-10-13 | Royal Bank of Scotland Group | Government of the United Kingdom | 30.641 | |
| 2008-10-14 | Bank of America | United States Federal Government | 45 | |
| 2008-10-14 | Bank of New York Mellon | United States Federal Government | 3 | |
| 2008-10-14 | Goldman Sachs | United States Federal Government | 10 | |
| 2008-10-14 | JP Morgan | United States Federal Government | 25 | |
| 2008-10-14 | Morgan Stanley | United States Federal Government | 10 | |
| 2008-10-14 | State Street | United States Federal Government | 2 | |
| 2008-10-14 | Wells Fargo | United States Federal Government | 25 | |
| 2009-02-11 |  Allied Irish Bank | Government of the Republic of Ireland | 3.861 | |
| 2009-02-11 | Anglo Irish Bank | Government of the Republic of Ireland | 13.57 | |
| 2009-02-11 | Bank of Ireland | Government of the Republic of Ireland | 3.861 | |
| 2009-03-19[13] | IndyMac | OneWest Bank | unknown | |
| 2012-03-13 |  Alpha Bank | Government of Greece | 2.096 | |
| 2012-03-13 | Eurobank | Government of Greece | 4.633 | |
| 2012-03-13 | National Bank of Greece | Government of Greece | 7.612 | |
| 2012-03-13 | Piraeus Bank | Government of Greece | 5.516 | |
| 2012-03-25 |  Laiki Bank | Bank of Cyprus | 10.812 | |
| 2012-05-25 | Bankia | Government of Spain | 20.962 | |
| 2012-06-07 |  Caixa Geral de Depositos | Government of Portugal | 1.78 | |
| 2012-06-07 | Millennium BCP | Government of Portugal | 3.3 |
In the U.S., deposits in savings and checking accounts are backed by theFDIC. 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 thereceiver 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 the2008 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 ofWashington Mutual the FDIC was able to broker a deal in whichJP 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 theirATM cards or do banking at branches.[18] Such policies are designed to discouragebank 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 the2008 financial crisis, when the failures of majorbulge 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 asLehman Brothers andBear Stearns failed, the employees from countries other than the United States suffered in turn. A 2015 analysis by theBank of England found greater interconnectedness between banks has led to a greater transmission of stresses during a time of recession.[19]
