25 Biggest Bank Failures in History

In celebration of this week’s bank stress tests, which promise that no bank will fail, we’ve decided to release a list of 25 banks that did kick the bucket. Here they are, in rough order of failure size:

The Bank of Credit and Commerce International

BCCI, founded in Karachi, Pakistan in 1972, failed in July 1991 because of widespread fraud. Once the 7th largest private bank in the world and holding over $20 billion USD in assets, regulators who investigated the firm found that it had “deliberately setup operations to avoid detection to commit fraud on a wide scale.” Lawsuits were filed against everyone from the bank’s auditors to a major shareholder from Abu Dhabi. It would become known as the $20 billion dollar heist.

Herstatt Bank, Germany

Herstatt Bank has a special place in bank failure lore, triggering a debacle that resulted in a new international regulation.

German regulators seized the ailing Herstatt and forced it to liquidate on June 26, 1974. The same day, other banks had released Deutsch Mark payments to Herstatt, which was supposed to exchange those payments for US dollars that would then be sent to New York. Regulators seized the bank after it received its DM payments, but before the US dollars could be delivered. The time zone difference meant that the banks sending the money never received their US dollars.

This “Herstatt Debacle” led to a new continuous linked settlement (CLS) protocol, which enables foreign banks to trade currencies without a settlement risk if one party or the other fails in their obligation.

Southeast Bank of Miami

The FDIC seized the Southeast Bank of Miami, the second largest bank in Florida, in September 1991. A slump in the regional commercial real estate market, combined with 1980s S&L Crisis fallout, had left the bank reeling. The FDIC seized and sold the bank to Charlotte’s First Union Corp. on September 19, 1991.

Notably, the South Florida community was outraged at the takeover. Southeast had been their only hometown bank, as well as the biggest nonprofit donor in the region. Southeast was still within minimum capital standards when the FDIC flipped it in 1991, a fact emphasized by the record $200 million in profits the FDIC made in 1997 off former Southeast loans. Critics claim the feds shut down the bank too quickly, assuming its losses would become too expensive if they waited.

Franklin Square National Bank

Long Island’s Franklin National Bank has a story fit for Hollywood. Founded in 1926, the bank piloted now-standard features such as hiring high school students as tellers, building drive-up teller windows, and offering bank credit cards.

The bank’s integrity went out the window when shady financier Michele “The Shark” Sindona purchased a controlling stake. Sindona used Franklin to launder money and build a Mafia-linked banking empire in the United States. Within two years, currency speculation, bad loans, and fraud drove Franklin into a fire sale. The Feds sent several bankers to jail, Sindona’s banking empire collapsed, and a fascinating chain of Mafioso events eventually led to Sindona being murdered in his jail cell with a cyanide capsule.

The Creditanstalt, Vienna

While the Great Depression may not have affected European banks as badly as those in the U.S., the Creditanstalt-Vienna is one notable example of a large healthy bank that failed. Founded by the Rothchild family in 1855, Creditanstalt became the largest bank in Austria-Hungary.

A poor economy and failure to deal with dwindling deposits forced it into bankruptcy in 1931. Its failure sent shockwaves through in Europe, causing bank failures in Germany, Hungary, Czechoslovakia, and Poland.

Long-Term Credit Bank of Japan

LTCB was one of the top three banks in Japan responsible for postwar economic growth. In 1989 it was considered the 9th largest company in the world by asset value. Then Japan’s asset bubble burst, poisoning LTCB with more than $19.2 billion in bad debt. In 1998, the Japanese government nationalized LTCB, then restructured it as a commercial bank named Shinsei Bank.

Silverado Savings and Loan

What good is running a bank if you can’t give yourself and your buddies a loan? Although he was never convicted of wrongdoing, Neil Bush, son of then Vice President George H.W. Bush, was forced to pay a $50,000 fine and banned from banking activities for his role in taking down Silverado, which cost taxpayers $1.3 billion. The US Office of Thrift Supervision determined that Neil Bush had engaged in numerous “breaches of his fiduciary duties involving multiple conflicts of interest” by giving himself and his business partners loans of over $200 million USD without notifying the Silverado Board.

Northern Rock

Northern Rock was a stable bank until the liquidity crisis of 2007. During the liquidity crisis of 200, Northern Rock could not acquire backing from institutional lenders, who themselves were reeling from the US subprime mortgage meltdown. The Tripartite Authority (The Bank of England, the FSA and HM Treasury) lent the bank 3 billion pounds on September 12, 2007.

After the news broke, Northern Trust’s stock fell 32%. Depositors ran on the bank. Unlike a classic bank run, which throws a bank into crisis, this one followed a crisis and compounded a preexisting liquidity problem. On February 17, 2008, the government nationalized Northern Rock.

Netbank

In September of 2007, NetBank was the largest US bank to fail since the S&L Crisis in the early 1990s. The Georgia-based bank, launched during the dot-com boom of the late 1990s, had $2.5 billion in assets and was known as the “Internet only” banking leader. Poor underwriting standards coupled, underperforming loans and subprime exposure led to Netbank’s meltdown.

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. In a surprising move for the time, the FDIC decided to insure all deposits- even if they exceeded the $100,000 insurance limit.

BNE was the largest bank in the New England area. With its sister banks, it had assets totaling $21.8 billion and deposits totaling $19 billion. Bad loans and heavy ties with bond creditors BNE led to its downfall. A settlement provided $140 million to creditors.

First Republic of Texas

First Republic of Texas (not to be confused with San Francisco’s First Republic Bank, which is alive and well) was the largest bank to fail during the savings and loan crisis in the 1980s. First Republic of Texas is famous for the “electronic bank run” that led to its failure. In 1988, a sour Texas real estate market and a balance sheet full of nonperforming loans made investors lose faith in the bank. The majority of the bank’s depositors withdrew their money through wire transfers and ATMs.

The bank failed in 1988 with total assets of $33.4 billion. Its collapse cost the FDIC $3.9 billion, making it the most expensive bank failure in US history—at the time.

WaMu

In September 2008, sparked by fears of the WaMu’s collapse, depositors withdrew roughly $16 billion dollars from the bank over a period of ten days. Washington Mutual, then the sixth-largest bank in the country, lost 10% of its total deposits during this slow motion bank run. The FDIC took receivership of the bank, then sold its subsidiaries to JP Morgan Chase for $1.9 billion. In the period of one month, WaMu went from the Wal-Mart of banking to one of the largest bank failures in history.

IndyMac

Los Angeles-based IndyMac used to be the largest loan originator in the country. Founded in 1995 as Countrywide Mortgage Investment, IndyMac fueled its aggressive growth through risky loan products like Alt-A mortgages, concentrating on inflated real estate markets like California and Florida, and relying heavily on borrowed funds, especially from the FHLB (Federal Home Loan Bank).

The U.S. woke up to the first and largest bank failure in recent memory on July 11, 2008, when the FDIC seized the bank’s assets (over $30 billion) and closed its doors.

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