Banking Crisis 2023
ANDREW HARRER/BLOOMBERG NEWS
This year has been an extraordinary one for the U.S. financial sector. Three large regional banks have failed over the last two months, and a smaller institution, Silvergate Bank, voluntarily shut down. How this crisis occurred, the management missteps involved and the regulatory response will surely be picked apart and analyzed for years to come.
Here's a look at the top 10 bank failures by asset size, according to data from the Federal Deposit Insurance Corp.
Guaranty Bank
Headquarters: Austin, Texas
Assets: $13.5 billion
Date: Aug. 21, 2009
Guaranty Bank is another Texas thrift that failed, though this time during the 2008 financial crisis.
In 2007, the bank was spun off from Temple-Inland, a timber company, but failed to report a quarterly profit after that move. In July 2008, Guaranty raised $600 million in capital from a group that included Carl Icahn and Robert Rowling.
However, its struggles continued, and the bank operated with negative capital in the months leading up its takeover. Overall, the $13.5 billion-asset Guaranty, based in Austin, focused on serving middle-market customers and making real estate construction loans and had more than 160 branches in Texas and California.
BBVA Compass snatched up Guaranty's assets in an effort to expand its U.S. presence. However, that effort would be short-lived, and BBVA would exit the U.S. in 2021 by selling its American operations to PNC Financial Services Group.
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First RepublicBank Corp.
Headquarters: Dallas
Assets: $17.1 billion
Date: July 29, 1988
Texas was the epicenter of the savings-and-loan crisis, and more than half of the institutions that failed during that turbulent period were based in the Lone Star State.
That group included First RepublicBank in Dallas, which had more than 40 bank subsidiaries when it was taken over. In 1987, it merged with another Dallas bank, InterFirst Bank, in an attempt to shore up its business. But that proved fruitless and regulators took the bank over in July 1988.
The year that First Republic failed was the first time since the FDIC was created in the 1930s that it posted an operating loss, which totaled $4.2 billion. Overall, the agency spent more than $7 billion tied to bank failures and assistance deals in 1988, including $4 billion connected to First RepublicBank's closure.
It was sold to NCNB in Charlotte, North Carolina. The acquisition doubled NCNB's size at the time, and the company would eventually become what is known as Bank of America today.
Colonial Bank
Headquarters: Montgomery, Alabama
Assets: $25.5 billion
Date: Aug. 14, 2009
The failure of Colonial Bank is another one that occurred during the 2008 financial crisis. The Montgomery, Alabama, institution began as a small community bank but grew over time through a series of deals.
Like many other institutions, the bank leaned too heavily into commercial and construction loans, which proved problematic when housing prices fell. However, widespread fraud also contributed significantly to its problems.
Lee Farkas, the former chairman of the mortgage lender Taylor, Bean & Whitaker that relied on Colonial's warehouse lending division, would eventually be convicted on a number of charges and was sentenced to 30 years in prison.
The Justice Department said in 2011 that Farkas "masterminded one of the largest bank fraud schemes in history." The Justice Department said that Farkas and others "misappropriated" roughly $1.4 billion from Colonial's mortgage warehouse lending division to cover Taylor, Bean & Whitaker expenses.
Bloomberg News
American Savings & Loan Association
Headquarters: Stockton, California
Assets: $30.2 billion
Date: Sept. 7, 1988
American Savings & Loan Association in Stockton, California, was once the largest thrift in the U.S. but failed during the broader savings-and-loan crisis during the 1980s and 1990s.
During that time, almost a third of these institutions were taken over by regulators. As for the $30.2 billion-asset American Savings, rapid growth and its large mortgage-backed securities portfolio proved to be its undoing. The thrift was purchased by the Robert M. Bass Group, which went on to complete a series of acquisitions before selling the business to Washington Mutual.
The bank's sale to the Bass Group raised eyebrows at the time. The deal included the Bass Group receiving more than $15 billion in good assets while more than $14 billion in soured loans were liquidated. "To say that it was a great deal is a gross understatement. It was unbelievable," an unnamed savings and loan executive said in a Time article from 1989.
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IndyMac Bank
Headquarters: Pasadena, California
Assets: $30.7 billion
Date: July 11, 2008
Some consider IndyMac Bank, based in Pasadena, California, the poster child for everything that contributed to the 2008 financial crisis.
The bank, one of the largest mortgage lenders with more than $30 billion of assets at the time of its failure, essentially made a slew of loans to subprime borrowers then securitized and sold them in the secondary market. When the housing bubble burst, it could no longer sell these loans and had to retain them.
Its liquidity position worsened as account holders withdrew more than $1 billion in deposits in under two weeks. Sen. Chuck Schumer, D-New York, was accused of contributing to the run after he publicly questioned the bank's reliance on brokered deposits and Federal Home Loan Bank advances. Much of its assets ended up being purchased by a group of private-equity investors who created OneWest Bank. OneWest would sell to CIT Group in 2015 for $3.4 billion.
Continental Illinois National Bank & Trust
Headquarters: Chicago
Assets: $40 billion
Date: May 17, 1984
Continental Illinois National Bank & Trust's failure was due, at least in part, to its purchase of loans tied to the oil-and-gas industry from Penn Square Bank of Oklahoma City. (Penn Square itself failed in 1982.)
Plummeting gas prices only worsened Continental's credit condition. On top of that, customers who had deposits over the insurance limit — $100,000 at the time — became spooked and withdrew their funds causing a run on the institution. Continental was the largest bank failure in U.S. history at that time, and regulators took unusual steps during the bank's failure, including purchasing billions of its bad loans.
This special treatment led to the popularization of the term "too big to fail" and a push by Congress to limit future rescues of large troubled institutions. Continental operated with the federal government owning a majority stake for a number of years before it returned to private ownership. In 1994, it was sold to Bank of America.
Stephanie Keith/Bloomberg
Signature Bank
Headquarters: New York
Assets: $110.4 billion
Date: March 12, 2023
Management at Signature Bank in recent years had made a strategic — and ill-fated — decision to serve the cryptocurrency industry. "We want to be very safe in this space, but we want to be in this space," Joseph DePaolo, then president and CEO of the bank, said in 2021.
In January of that year, more than 16% of its deposits were tied to that industry. However, as turmoil rattled the crypto sector last year, Signature experienced a flood of outgoing deposits. That outflow continued into 2023, and regulators ultimately closed the institution.
New York Community Bancorp's Flagstar Bank unit agreed to buy substantially all of Signature's deposits and certain loans. The agreement excluded its digital-asset business.
And in perhaps an ironic footnote to the sad tale: former Sen. Barney Frank, one of the key architects behind the banking reforms implemented after the 2008 financial crisis, was on the board at Signature at the time of its failure.
David Paul Morris/Bloomberg
Silicon Valley Bank
Headquarters: Santa Clara, California
Assets: $209 billion
Date: March 10, 2023
Silicon Valley Bank's failure was perhaps as swift as it was shocking. Although the institution touted its close ties to the tech sector, an old-fashioned bank run led by tech firm depositors helped to bring it down.
Furthermore, management had invested in bonds when interest rates were low. That proved to be a fatal mistake when it was forced to sell a large portion of its portfolio — at a loss — to meet its obligation as depositors fled. A last-ditch effort to raise capital also did not materialize, sealing its fate.
There are also accusations that venture capitalists and others contributed to the failure by encouraging depositors to take their money elsewhere. "I'd like to formally thank my peers in the venture community whose stellar leadership over the past 48 hours triggered a run on deposits at Silicon Valley Bank, ultimately toppling one of the most important institutions in our ecosystem," Brad Svrluga, co-founder and general partner at Primary Venture Partners, tweeted in March.
First Republic Bank
Headquarters: San Francisco
Assets: $229.1 billion
Date: May 1, 2023
First Republic Bank had struggled in the weeks after Silicon Valley Bank and Signature Bank both failed in March. The $229.1 billion-asset institution, which had long focused on serving wealthier clients, was caught flat-footed amid rising interest rates. Its customers took out mortgages at extremely low rates during the pandemic. However, these assets fell in value as interest rates rose.
Last month, to show confidence in First Republic, a group of large banks, including JPMorgan Chase, Bank of America, Wells Fargo and Citigroup, parked $30 billion of uninsured deposits at the institution. That seemed to calm depositors, if only in the short term.
Last week, First Republic reported its first-quarter earnings, which were worse than many industry observers expected. That disclosure seemed to seal its fate as its stock price plummeted, and management said it was considering a range of options.
After First Republic was put into receivership, JPMorgan Chase purchased its deposits and "substantially all" of its assets.
ANDREW HARRER/BLOOMBERG NEWS
Washington Mutual Bank
Headquarters: Henderson, Nevada
Assets: $307 billion
Date: Sept. 25, 2008
Washington Mutual Bank remains the largest bank failure and by a fairly wide margin.
The institution faltered during the 2008 financial crisis as the housing market and the secondary market for mortgage-backed securities crashed. The collapse of Lehman Brothers only made matters worse as WaMu depositors panicked and withdrew their funds in droves. JPMorgan Chase ended up purchasing the institution's assets and liabilities, and the bank's parent company filed for Chapter 11 bankruptcy.
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