Top 7 Biggest Bank Failures
Throughout U.S. history, bank failures have generally occured during economic downturns. Recently, the credit crisis has taken bank failures to a whole new level. Previously, the largest bank failure in terms of assets stood at $40 billion. Now, the largest bank to fail had assets of over $300 billion.
We'll take a look at the seven largest bank failures in U.S. history, from the savings and loan crisis in the 1980s to the present day credit crisis.
Washington Mutual became the largest U.S. bank to go under in 2008, as it succumbed to a severe financial crisis. Washington Mutual is currently the largest bank failure in U.S. history, unceremoniously taking the crown from Continental Illinois National Bank and Trust. The FDIC seized Washington Mutual's assets and brokered a deal to have JPMorgan acquire the failed bank for $1.9 billion.
At the time of seizure, Washington Mutual had total assets of $307 billion and total deposits of $188 billion. (Read Mark-To-Market Mayhem to find out how this banking giant was brought to its knees.)
IndyMac Bank, based in Pasadena, CA., was closed on July 11, 2008, as it was not able to withstand a bank run coupled with an eroding loan portfolio. IndyMac was one of 25 banks closed in 2008 due to problems stemming from the credit crisis.
As of July 2008, IndyMac had total assets of $32.01 billion and total deposits of $19.06 billion. Interestingly, Fed authorities with the Office of Thrift Supervision (OTS) pointed the finger at Sen. Charles Schumer for sparking the bank run on IndyMac with his public comments on the company's viability. (For further reading, check out Financial Regulators: Who They Are And What They Do.)
Continental Illinois National Bank And Trust
In 1981, Continental Illinois National Bank and Trust was the 6th largest bank in the U.S. and had the country's largest commerical and industrial loan portfolio. The bank collapsed in 1984 due to a significant increase in losses stemming from its nonperforming loans, which it had acquired from Penn Square Bank.
At that time, Continental had assets of $40 billion and the FDIC felt the bank was too large to be allowed to fail. In addition to giving guarantees to depositors, the FDIC infused billions of dollars to recapitalize the bank. (Read more about the history of bailouts in Top 6 U.S. Government Financial Bailouts.)
First Republic Bank
First Republic Bank was the largest bank to fail during the savings and loan crisis in the 1980s. The bank failed in 1988 with total assets of $33.4 billion. At that point, First Republic was the most costly failure in U.S. history as it cost the FDIC $3.9 billion.
Deterioration in the Texas real estate market and significant increases in nonperforming loans caused depositor confidence to plummet, leading to a bank run on the company. This bank run was termed an "electronic run" on First Republic because many depositors were using wire transfers and automatic teller machines to withdraw their deposits. (For more information on market crashes through history, check out our feature on The Greatest Market Crashes.)
American Savings And Loan
Amid the massive number of failures during the 1980s savings and loan crisis was the failure of American Savings and Loan, one of the biggest savings and loan companies to go under at that time.
Based out of Stockton, CA., American Savings and Loan had assets totaling $30.2 billion, and the significant cost to resolve the bank amounted to $5.7 billion for the FDIC.
Bank Of New England
The Bank of New England (BNE), along with its two sister banks, Maine National Bank and Connecticut Bank and Trust, failed on January 6, 1991. The failure was considered significant enough that the FDIC decided to insure all deposits even if they exceeded the $100,000 insurance limit.
At the time, the BNE was the 33rd largest bank in the U.S., and including its sister banks, it had assets totaling $21.8 billion and deposits totaling $19 billion. As with most bank failures, a bad loan portfolio triggered BNE's downfall.
In March 1989, MCorp failed due to pressures from a falling real estate market and poor economic conditions. MCorp had a concentrated loan portfolio in energy and real estate, and losses from those loans pushed MCorp into insolvency.
At the time of failure, MCorp had total assets of $18 billion, and the final cost for the FDIC to resolve this bank amounted to $2.8 billion. Notice that the cost is a large percentage of MCorps assets, which highlights the poor quality of those assets.