Bank failures are not rare events. They are so common that most people don’t even know when or how often banks collapse. But every once in a while, a big bank goes bust and everyone takes notice. More than a third of American banks collapsed during the 1929 Great Depression. In 1933, the US government established the Federal Deposit Insurance Corporation (FDIC) to restore people’s faith in the American banking system. Here we take a look at the top 10 biggest bank failures since the FDIC started tracking them in 1933.
Since 1933, there were only three years (2005, 2006, and 2018) when no American bank collapsed. The number of bank failures jumps significantly during an economic crisis. A staggering 534 banks failed in 1989 and 470 banks in 1988. The numbers stood at 288 in 2009, 314 in 2010, and 184 in 2011.
Biggest bank failures explained
Most customers don’t lose their money when a bank fails because the FDIC guarantees up to $250,000 in deposits per person per account type. Bank failures occur when a bank can’t meet its obligations to depositors and creditors.
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When a bank is on the verge of collapse, the FDIC steps in to take control or find a more solvent bank to take it over. For depositors, it’s business as usual. They will still be able to access their money and use their debit cards. If the failed bank gets acquired by another bank, its account holders become customers of the acquirer.
These are the top ten biggest bank failures based on the size of their assets at the time of collapse. The ranking is based on data from FDIC.
10- Gibraltar Savings and Loan (1989), $15.1 billion
In April 1989, federal regulators seized control of Gibraltar Savings and Loan and removed its CEO James Thayer immediately. It was one of the largest bank failures at the time. The savings and loan mismanaged its real estate assets and mortgage-backed securities.
Simi Valley, California-based Gibraltar Savings had become insolvent and undercapitalized. It had $15.1 billion in assets and more than a hundred retail branch offices across California, Washington, and Florida. It was eventually acquired by Security Pacific National Bank.
9- FBOP Corp’s banking subsidiaries (2009), $18.4 billion
This is one of the many casualties of the 2008 financial crisis. The FDIC and other federal regulators took control of the Oak Park, Illinois-based financial institution’s nine banking subsidiaries in October 2009. Its banking subsidiaries had an estimated $18.4 billion in assets. All the banking subsidiaries were immediately sold to U.S. Bancorp.
8- MCorp (1989), $18.5 billion
As many as 20 banks owned by MCorp failed in 1989 due to their high exposure to bad real estate and energy sector loans. MCorp was the second largest banking institution in Texas at the time with about $18.5 billion in assets. It cost FDIC about $2.8 billion to cover the bad loans. The regulator then consolidated all the entities into a single bank called Deposit Insurance Bridge Bank, which it sold to Banc One.
7- Bank of New England (1991), $21.7 billion
The Bank of New England was flying high on the back of a booming real estate market. But it suffered heavy losses when the real estate market crashed. The credit union crisis in Rhode Island made things even worse. The FDIC seized control of the Bank of New England and its two sister banks Maine National Bank and Connecticut Bank and Trust. It was placed into Chapter 7 liquidation in January 1991.
6- Colonial Bank (2009), $25 billion
Montgomery, Alabama-based Colonial Bank had a little over $25 billion in assets and 340 branches. The bank went under in 2009 due to a massive fraud orchestrated by its own executives and the mortgage group Taylor, Bean & Whitaker (TBW). Colonial Bank had purchased more than $1 billion worth of mortgages from TBW. Notably, TBW never owned any of those mortgages. The FDIC took control of the bank when the fraud was discovered. The failure of Colonial Bank cost FDIC $2.8 billion.
5- American Savings and Loan (1988), $30.2 billion
Stockton, California-based American Savings and Loan thrived during the 1950s and 1960s amid Southern California’s booming real estate market. The savings and loan absorbed heavy losses in 1984 as the real estate market cooled. Panicked customers withdrew about $7 billion within weeks.
Federal regulators seized control of the thrift and contributed about $5.7 billion to revive it. But it had large mortgage-backed securities, and its condition continued to deteriorate. It was the largest thrift failure at the time. In 1996, Washington Mutual Bank purchased American Savings for $1.2 billion.
4- IndyMac Bank (2008), $32 billion
Pasadena, California-based IndyMac Bank was one of the largest mortgage lenders in the United States. Most other financial institutions were investing in subprime mortgages, giving loans to borrowers with bad credit scores. IndyMac Bank focused on Alt-A mortgages, which were loans given to people with good credit scores but unreliable streams of income. Its loan book swelled from $22 billion in 2003 to $90 billion in 2006.
Instead of selling the mortgages to investors, IndyMac was using the bank deposits to make the loans. When the real estate market collapsed, IndyMac became one of the biggest bank failures in the US history. Customers withdrew most of their money, which caused a cash crunch and led to its demise. IndyMac’s failure cost the FDIC approximately $9 billion.
3- First RepublicBank Corp (1988), $32.5 billion
This is not to be confused with San Francisco-based First Republic Bank, which is doing well. Dallas, Texas-based First RepublicBank had $32.5 billion in assets when it went under. Its excessive exposure to real estate was the primary reason behind its downfall. The bank had $3.9 billion worth of bad loans, more than half of which were in the real estate sector.
The company posted heavy losses in 1987, and sought the assistance of the federal regulators to avoid a failure. But concerned depositors withdrew more than $600 million of their money, which caused a cash crunch. FDIC took control of the bank and spent $3.9 billion to cover its bad loans. In 1991, North Carolina National Bank purchased it from FDIC.
2- Continental Illinois National Bank and Trust (1984), $40 billion
San Francisco-based Continental Illinois had the dubious distinction of the biggest bank failure in the US history for well over two decades. It had $40 billion in assets when it collapsed in 1984. Its demise was largely due to the purchase of bad loans from the failed Penn Square Bank. A massive run on the bank forced the FDIC to seize control. It was Continental’s collapse that gave rise to the “too big to fail” concept.
Due to the vast size and assets of the bank, the FDIC feared its failure could cause nationwide financial instability. So, it infused $4.5 billion to recapitalize the bank. The FDIC offered guarantees to all deposit holders and even bondholders. The regulator poured many more billions of dollars to keep it alive as they looked for a merger partner. In 1994, BankAmerica purchased Continental to expand its presence in the Midwest.
1- Washington Mutual (2008), $307 billion
Washington Mutual was by far the biggest bank failure in the US history. In 2003, Washington Mutual CEO Kerry Killinger proclaimed that in five years, Washington Mutual would do to the savings and loan holding industry what Walmart had done to the retail business. But five years later, Washington Mutual vanished due to its extensive exposure to subprime mortgages.
It was hit hard by the real estate bust and credit crisis. Worried depositors withdrew a staggering $16.7 billion from the bank in just nine days. In September 2008, the federal Office of Thrift Supervision (OTS) seized control of WaMu Bank and placed it into receivership with the FDIC. Washington Mutual had $307 billion in assets. JPMorgan Chase purchased WaMu’s banking assets for $1.9 billion. The FDIC didn’t have to infuse money out of its own pockets into WaMu.