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Contrary to popular belief, bank failures occur frequently—there have been 568 in the U S. since January 1, 2000. That’s an average of almost 25 per year.
However, the simultaneous failures of Silicon Valley Bank (SVB) and Signature Bank in the first part of 2023, and First Republic Bank in May, were exceptional in a number of respects. Our examination of the Federal Deposit Insurance Corporation’s (FDIC) database highlights the noteworthy aspects of the most recent bank failures and provides a framework for contrasting them with past bank failures.
The recent failures of Silicon Valley Bank (SVB) and Signature Bank in early 2023, followed by First Republic Bank in May, have raised concerns about the stability of the banking industry. While these were high-profile collapses, it’s important to understand the context of bank failures and how they relate to the broader economic landscape.
Bank Failures in 2023: A Closer Look
The collapses of SVB, Signature Bank, and First Republic Bank were unique in several ways:
- Size: All three were large financial institutions, holding over $100 billion in assets.
- Circumstance: These banks primarily served wealthy customers and startups, meaning the majority of deposits were uninsured, exceeding the $250,000 FDIC insurance limit.
However, it’s important to note that five bank failures in one year is below average. In the wake of the Great Recession, it was typical to see dozens—if not hundreds—of bank failures each year. This slowed significantly from 2015 to 2020, when the U.S. saw an average of fewer than five bank failures per year. Zero banks failed in both 2021 and 2022.
Historical Context of Bank Failures
- 2000-2022: 568 bank failures, with 82% occurring between 2008 and 2012.
- 2010: Peak year with 157 bank failures.
- 2020-2022: No bank failures.
- 2023: 5 bank failures (as of November 2023).
While 2023’s bank failures are noteworthy due to their size and circumstance, the number remains significantly lower than historical averages.
Reasons for Recent Bank Failures
- Rising interest rates: Higher rates can make it more expensive for banks to borrow money, potentially leading to liquidity issues.
- Economic uncertainty: Fears of a recession can lead to decreased consumer confidence and reduced business activity, impacting bank profitability.
- Concentration of uninsured deposits: In the case of SVB, Signature Bank, and First Republic Bank, a large portion of deposits were uninsured, making them more vulnerable to depositor withdrawals during times of stress.
Are Banks in Trouble in 2023?
While the recent bank failures have raised concerns, it’s important to remember that they are not necessarily indicative of a broader crisis in the banking industry. The U.S. banking system is currently well-capitalized and regulated, and the FDIC insures deposits up to $250,000.
However, it’s important to monitor the situation closely and be aware of the potential risks If you are concerned about the safety of your deposits, you may want to consider spreading your money across multiple banks or keeping some of your funds in insured accounts
Looking Ahead: The Future of the Banking Industry
The banking industry is facing several challenges in the years ahead including:
- Technological disruption: Fintech companies are offering innovative financial services that are challenging traditional banks.
- Changing consumer preferences: Younger generations are more likely to use digital banking options, and they may be less loyal to traditional banks.
- Increased regulation: Banks are facing increased regulatory scrutiny, which can make it more expensive and complex to operate.
However, the banking industry is also well-positioned to adapt to these challenges. Banks have a long history of innovation and are investing heavily in new technologies. They also have a strong brand recognition and a loyal customer base.
The future of the banking industry is uncertain, but it is likely to be shaped by a combination of technological innovation, changing consumer preferences, and increased regulation. Banks that can adapt to these changes will be well-positioned to succeed in the years ahead.
While the recent bank failures have raised concerns, it’s important to remember that they are not necessarily indicative of a broader crisis in the banking industry. The U.S. banking system is currently well-capitalized and regulated, and the FDIC insures deposits up to $250,000. However, it’s important to monitor the situation closely and be aware of the potential risks. If you are concerned about the safety of your deposits, you may want to consider spreading your money across multiple banks or keeping some of your funds in insured accounts.
Frequently Asked Questions
Q: Are banks in trouble in 2023?
A: While the recent bank failures have raised concerns, it’s important to remember that they are not necessarily indicative of a broader crisis in the banking industry. The U.S. banking system is currently well-capitalized and regulated, and the FDIC insures deposits up to $250,000. However, it’s important to monitor the situation closely and be aware of the potential risks.
Q: What are the reasons for the recent bank failures?
A: Rising interest rates, economic uncertainty, and the concentration of uninsured deposits are some of the reasons for the recent bank failures.
Q: What is the future of the banking industry?
A: The banking industry is facing several challenges in the years ahead, including technological disruption, changing consumer preferences, and increased regulation. However, banks are also well-positioned to adapt to these challenges and are likely to be shaped by a combination of technological innovation, changing consumer preferences, and increased regulation.
Q: How can I protect my money in the event of a bank failure?
A: You can protect your money in the event of
Bank Failures by Day of the Week
| Day of the Week | Bank Failures |
|---|---|
| Sunday | 1 |
| Monday | 2 |
| Tuesday | 2 |
| Wednesday | 2 |
| Thursday | 19 |
| Friday | 541 |
| Saturday | 1 |
There’s a strategic purpose behind this. Traditionally, banks operate Monday through Friday and close on weekends. In the event that the FDIC takes over a failing bank on Friday, it will have all weekend to settle accounts, sell off assets, and assign management before clients begin to call for their money.
Ensuring a seamless transition and containing panic is not limited to the clientele of a single bank. Customers at other banks may begin to fear they will lose their money if regulators don’t do a good job of absorbing the fall when a bank collapses, which could lead to bank runs across the nation. This self-fulfilling prophecy can trigger a financial crisis.
This is the rationale behind the Sunday night closure of Signature Bank, which required regulators to clear up the third-largest bank failure in U.S. S. history overnight, might seem odd. According to a CNBC interview with board member Barney Frank, it even surprised Signature Bank executives, who thought they had stabilized the situation over the weekend.
But because the SVB failure occurred quickly, an even quicker run on deposits at Signature Bank resulted. It makes sense for regulators to take control and reassure depositors that their money is safe before they have a chance to withdraw it because they are concerned about preventing a domino effect in the banking sector.
Bank Failures by Month
| Month | Bank Failure |
|---|---|
| January | 51 |
| February | 45 |
| March | 42 |
| April | 60 |
| May | 45 |
| June | 36 |
| July | 75 |
| August | 41 |
| September | 38 |
| October | 63 |
| November | 37 |
| December | 35 |
When it comes to the time of year when banks fail, there is typically a surge around the beginning of each quarter. Among bank failures since 2000, January, April, July, and October have been the four busiest months. However, bank failures in March aren’t necessarily unusual.