Five Largest Failed Banks – The Biggest One Is Not On The FDIC Failed Bank List

Five Biggest Bank Failures Ever

As the US banking crisis grew steadily worse during 2008, the largest bank failure as of July 2008 (Indy Mac) ranked only number 3 on the list of the largest bank failures in history.

5 Biggest Bank Failures As Of July 2008

Institution Name                    Date                $Assets Billions

Continental Illinois                 5/1984                  $40

First Republic Bank                 7/1988                  $32

Indy Mac Bank                         7/2008                  $32

American S&L                          9/1988                  $30

Bank Of New England              1/1991                  $22

Indy Mac was not the largest bank failure by asset size but according to the FDIC statistics, was the most expensive with an $8.9 billion loss to the FDIC.  The largest loss prior to that was American S&L in 1988 with a $5.4 billion loss.

According to FDIC statistics, the 10 largest bank failures in the United States during the period of 1934 to mid 2008 involved total bank assets of $223.3 billion with a loss to the FDIC of $24.9 billion.  What came after July 2008 made every prior bank failure seem no more important than the closing of a local candy store.

Washington Mutual Failure Makes Others Look Insignificant

On the current FDIC failed bank list, the largest institution listed by the FDIC is Washington Mutual in September 2008.  At the time of the Washington Mutual closure, the bank had total assets of $307 billion.  The government negotiated to have JP Morgan take over Washington Mutual and gave JP Morgan certain guarantees that limited future losses on the acquired assets.

The Largest Banking Failure In History Is Not On The Failed Bank List

Wachovia Bank, the largest banking failure in the history of the United States, is not officially listed as a failed bank by the FDIC.  During the summer of 2008, as mortgage losses climbed into the multi billions and customers withdrew huge sums in a silent bank run, Wachovia was on the verge of collapse.   Wachovia bank would have failed at this point without massive cash infusions from the US Government.  By the fall of 2008, banking analysts considered Wachoiva to be effectively insolvent.

The FDIC’s Deposit Insurance Fund was never structured to handle multiple failures of the country’s largest banks.  The FDIC simply did not have the funds to protect depositors. Nor did the FDIC want to risk a country wide banking panic by closing Wachovia.  With over $812 billion in assets, Wachovia was simply too big to fail.

Federal regulators eventually pushed Wachovia into accepting a buyout offer from Wells Fargo for $12.7 billion, which was completed in January 2009.   At the time Wells Fargo stated that it expected to take write downs on the Wachovia portfolio of $71 billion.  The government gave Wells Fargo certain guarantees and agreed to accept losses past certain amounts.

Wachovia proved to be more of a nightmare than Wells Fargo had anticipated.  By March of 2009 losses at Wells Fargo became so large that the solvency of Wells Fargo itself was now being questioned.  Ultimately a government bailout of Wells Fargo using TARP funds was necessary.  Currently, the latest government stress tests revealed that Wells Fargo needs to raise $13.7 billion in capital and in a worse case scenario could face future losses of up to $86 billion.

The US Government has stated that they will not let Wells Fargo or any other mega bank fail.  For the many smaller banks that are still facing mounting loan losses, there is no Government guarantee against closure.  Expect to see many of the weaker small banks wind up on the FDIC’s official Failed Bank List during 2009.

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