What Is a Bank Failure? Definition and List of Failed Banks

A bank failure is the closure of a bank by a regulator when it doesn’t have enough money to operate.
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What is a bank failure?

A bank failure is the closure of a bank by a government regulator generally when the bank loses the ability to pay back debts or return deposits to customers. A failed, or bankrupt, bank will have its assets, such as customer loans and investments for future profit, be worth less than its liabilities, such as customer deposits that the bank owes. When many customers lose confidence in a bank and try to pull out all their money at once, a bank run occurs.

The Federal Deposit Insurance Corp., the federal agency that manages failed bank operations, has not lost any insured deposits since coverage began in 1934. And no deposit customers of failed banks have lost any of their deposits, insured or uninsured, in recent years.

Silicon Valley Bank’s collapse in 2023 sent shock waves through the banking industry, but bank failures aren’t common. Since 2001, there have been 567 bank failures, and nearly 70% of them happened in the three years immediately following the 2008 financial crisis. For reference, there are more than 4,500 FDIC-insured banks.

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What happens when a bank fails?

A failed bank doesn’t go through the same bankruptcy process that other failed businesses go through. Instead, the FDIC steps in with two responsibilities: to protect customer deposits and to take over the failed bank to sell off assets, settle debts and sell the bank to a healthy bank.

1. FDIC protects deposits

Most banks are insured by the FDIC. If a bank fails, the FDIC protects up to $250,000 per deposit account customer, per bank and per ownership category. The category refers to how single-owned and joint accounts and trusts count separately. FDIC insurance protects money in deposit accounts, such as checking, savings and money market deposit accounts and certificates of deposit. Stocks, bonds and other investments are not protected.

The FDIC guarantees that customers receive their deposits up to the insurance limit, either by check or in a new account at a healthy bank. If there’s no bank to buy the failed bank’s deposits, the FDIC aims to pay customers by check within two business days of the bank’s closure. In recent years, the FDIC has provided customers of failed banks with equivalent accounts at new banks with no loss of deposits.

In Silicon Valley Bank’s case in March 2023, three federal regulators — the FDIC, the Department of the Treasury and the Federal Reserve — agreed to protect all depositors’ money, even uninsured amounts. The regulators cited a systemic risk exception in this situation to prevent a financial crisis as customers with uninsured deposits at other banks started to panic.

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2. FDIC sells the failed bank

The FDIC becomes the receiver of a failed bank to collect and sell assets, settle debts and quickly sell to another bank. The most common and preferred type of sale is for a healthy bank to take on all insured deposits so customers of the failed bank have continuous access to their funds and banking services. The healthy bank can also buy all loans and other assets of the failed bank.

In liquidating the failed bank, the FDIC pays affected customers and others in this order: insured deposit customers, uninsured deposit customers, creditors (or those who are owed money), and stockholders. Creditors and stockholders usually receive little to no money.

Bank customers and the general public aren’t notified until after a bank closure. Bank failures tend to occur on a Friday, usually giving the FDIC enough time to sell the bank before the following Monday. Two recent exceptions to quick sales were Silicon Valley and Signature Bank, in which the FDIC created temporary bridge banks for customers until it found buyers for the failed banks.

List of most recent failed banks: 2019-2024

Here’s the list of U.S. bank failures since 2019. The most recent bank failure was Republic First Bank in 2024.

Bank name

Date of collapse

Acquiring bank name

Republic First Bank

April 26, 2024.

Fulton Bank.

Citizens Bank

Nov. 3, 2023.

Iowa Trust & Savings Bank.

Heartland Tri-State Bank

July 29, 2023.

Dream First Bank.

First Republic Bank

May 1, 2023.

Signature Bank

March 12, 2023.

Flagstar Bank.

Silicon Valley Bank

March 10, 2023.

First Citizens Bank & Trust Company.

Almena State Bank

Oct. 23, 2020.

Equity Bank.

First City Bank of Florida

Oct. 16, 2023.

United Fidelity Bank.

First State Bank

April 3, 2020.

MVB Bank.

Ericson State Bank

Feb. 14, 2020.

Farmers and Merchants Bank.

City National Bank of New Jersey

Nov. 1, 2019.

Industrial Bank.

Resolute Bank

Oct. 25, 2019.

Buckeye State Bank.

Louisa Community Bank

Oct. 25, 2019.

Kentucky Farmers Bank Corporation.

The Enloe State Bank

May 31, 2019.

Legend Bank.

Source: FDIC’s Failed Bank List

Federal Deposit Insurance Corporation. Resources: Failed Bank List. Accessed May 14, 2024.
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6 largest bank failures in U.S. history

Bank name

Headquarters

Date of collapse

Asset size (at collapse)

Washington Mutual Bank

Henderson, NV.

Sept. 25, 2008.

$307 billion.

First Republic Bank

San Francisco.

May 1, 2023.

$212 billion.

Silicon Valley Bank

Santa Clara, CA.

March 7, 2023.

$209 billion.

Signature Bank

New York.

March 12, 2023.

$110 billion.

Indymac Bank

Pasadena, CA.

July 11, 2008.

$30 billion.

Colonial Bank

Montgomery, AL.

Aug. 14, 2009.

$25 billion.

Source: FDIC’s BankFind Suite’s Bank Failures & Assistance Data

Federal Deposit Insurance Corporation. BankFind Suite: Bank Failures & Assistance Data. Accessed May 15, 2024.
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What happens when a credit union fails?

Credit unions, the not-for-profit equivalent to banks, have a different federal deposit insurance agency, the National Credit Union Administration. NCUA insurance protects credit union members’ deposit accounts up to $250,000, the same way that the FDIC does.

When a credit union is in trouble, the NCUA places it into a conservatorship, taking control of the credit union. A conservatorship can have three endings: A credit union resolves operational issues, decides to merge with another credit union or goes through liquidation. The NCUA manages liquidations, meaning involuntary closures that can result in another credit union buying the failed institution.

As with banks, credit union failures aren’t common. Since 2009, there have been 260 instances of a credit union experiencing a conservatorship, merger or liquidation, according to the NCUA. For reference, there are 4,600 credit unions, according to the NCUA’s December 2023 data.

What happens when a neobank fails?

Not every consumer banking institution is a bank or credit union. Neobanks are financial technology firms that generally partner with banks to offer federally insured accounts, but many neobanks aren’t banks themselves.

When a neobank fails, deposits are still held at its partner bank, and the neobank must work with its customers directly to help them recover their funds. Neobank customers can experience delays or other issues in getting money back. The FDIC doesn’t step in unless the neobank’s partner bank fails. See more about what happens if a neobank fails.

Frequently asked questions

No. The FDIC pays customers at failed banks their insured deposits from money collected from insured banks over time in a deposit insurance fund. The FDIC also adds interest earned from U.S. Treasurys into the fund.

Banks considered “too big to fail” refer to important banks that are believed to be large and interconnected enough globally to cause a financial crisis if they failed. The government would bail them out to avoid such a crisis.

There are around 30 such banks worldwide, known as G-SIB banks, and eight are in the U.S.: Bank of America, BNY, Chase, Citibank, Goldman Sachs, Morgan Stanley, State Street and Wells Fargo. The list is determined by the Financial Stability Board, an international organization.

In the cases of Silicon Valley Bank and Signature Bank, regulators invoked what is known as the systemic risk exception to cover all uninsured deposits of customers to prevent a financial crisis, but the banks themselves, which were acquired by healthy banks, were not too big to fail.

Capital, or the equity or investments in a bank, acts as a financial buffer for a bank to absorb losses, such as from investments or loan defaults. Capital requirements help ensure the financial health of a bank, coming into play to help keep the value of a bank’s assets higher than its liabilities. The Federal Reserve sets capital requirements for banks.

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