One of the things that is most surprising about any form of financial crisis is the degree of surprise that market participants display at its unfolding. You can see this scene play at present with the recent collapse of Silicon Valley bank and the current nervousness that surrounds U S regional banks. What new players don’t realise is that bank failures are a reasonably common occurrence. In the 1980s it seemed to be a recurring theme with what seemed to be almost one bank a week failing in the US – there have probably been thousands of failures since then. The pace has slackened in recent years but bank failures particularly large catastrophic failures our common feature of the financial system.
It took me less than a few minutes to compile the following list of recent somewhat spectacular banking failures.
One of the things that is most surprising about any form of financial crisis is the degree of surprise that market participants display at its unfolding. You can see this scene play at present with the recent collapse of Silicon Valley bank and the nervousness that surrounds U S regional banks. What new players don’t realise is that bank failures are a reasonably common occurrence. In the 1980s it seemed to be a recurring theme with what seemed to be almost one bank a week failing in the US. The pace has slackened in recent years but bank failures particularly large catastrophic failures our common feature of the financial system.
It took me less than a few minutes to compile the following list of recent spectacular banking failures. As I said in my video on the collapse of SVB – surprise is a source of friction and it extracts a cost from the unprepared. I say again – read your financial history or run the risk of being perpetually surprised by what is actually normal behavior.
Yamashiro Bank 1998
The collapse of Yamashiro Bank in 1998 was a the time considered the largest banking failure in history. The bank had assets of around $240 billion at the time of its collapse. The bank’s failure was caused by a combination of factors, including bad loans, aggressive expansion, and the Japanese economic downturn of the 1990s. The Japanese government was forced to intervene and take over the bank’s operations to prevent a wider financial crisis.
Lehman Brothers (2008)
Lehman Brothers was a global investment bank that filed for bankruptcy in September 2008. The bank’s collapse was a significant factor in the global financial crisis, which had a severe impact on the global economy. The failure of Lehman Brothers was largely due to its exposure to the US subprime mortgage market.
Washington Mutual (2008)
Washington Mutual was the largest savings and loan association in the US until its failure in September 2008. The bank had a significant amount of subprime mortgages on its balance sheet, which led to its collapse. The bank’s failure was the largest in US history, with over $300 billion in assets.
Barings Bank (1995)
Barings Bank was a British investment bank that collapsed in 1995 following the discovery of massive losses resulting from unauthorized trading by one of its employees, Nick Leeson. The bank’s collapse sent shockwaves through the financial world, and it was acquired by the Dutch bank ING.
IndyMac Bank (2008)
IndyMac Bank was a US-based bank that specialized in subprime mortgages. The bank’s failure in July 2008 was one of the largest bank failures in US history, with over $32 billion in assets. The bank was taken over by the Federal Deposit Insurance Corporation (FDIC) and later sold to OneWest Bank.
Bank of Credit and Commerce International (BCCI) (1991)
BCCI was a Pakistani bank that collapsed in 1991 following a series of scandals and investigations into money laundering, bribery, and other criminal activities. The bank’s collapse was one of the largest in history, with over $20 billion in assets. The bank’s founder, Agha Hasan Abedi, was indicted on charges of fraud and money laundering.
Continental Illinois National Bank and Trust (1984)
Continental Illinois National Bank and Trust was a US-based bank that failed in 1984 due to its exposure to the energy industry. The bank’s collapse was the largest in US history at the time, with over $40 billion in assets. The bank was taken over by the FDIC and later sold to Bank of America.
Northern Rock (2007)
Northern Rock was a UK-based bank that failed in 2007 due to its exposure to the subprime mortgage market. The bank’s collapse was the first bank run in the UK in over 150 years, and it was nationalized by the UK government. The bank was later sold to Virgin Money.
Royal Bank of Scotland (RBS) (2008)
RBS is a Scottish bank that collapsed during the global financial crisis in 2008. The bank had expanded aggressively in the years leading up to the crisis and had a significant exposure to the US subprime mortgage market. The UK government was forced to bail out the bank, which cost taxpayers over £45 billion.
Banco Espirito Santo (BES) (2014)
BES was a Portuguese bank that failed in 2014 due to a series of accounting irregularities and losses on its investments in the Espirito Santo family group. The bank was split into a good bank and a bad bank, and the good bank was later sold to another Portuguese bank, Novo Banco.
Banco Popular (2017)
Banco Popular was a Spanish bank that failed in 2017 due to significant exposure to non-performing loans. The bank was acquired by another Spanish bank, Santander, for the nominal price of €1.
Banca Monte dei Paschi di Siena (BMPS) (2017)
BMPS is an Italian bank that has been in operation since the 15th century. The bank has faced numerous financial difficulties over the years, and in 2017, it was bailed out by the Italian government. The bank’s troubles were largely due to its exposure to bad loans and a series of derivative trades that went wrong.
Icelandic Banks (2008)
Icelandic banks, including Landsbanki, Glitnir, and Kaupthing, collapsed during the global financial crisis in 2008. The banks had expanded aggressively in the years leading up to the crisis and had significant exposure to the Icelandic property market. The Icelandic government was forced to nationalize the banks, and the country faced a severe economic crisis.
The best part about the collapse of the Icelandic banks was simply the fact that Iceland took an adult approach to the collapse of its banks. It did not seek to socialise the losses by bailing the banks out and enabling executives to walk away free. A slew of Icelandic banking executives were jailed over the collapse of their respective banks. If this were adopted as a global policy it would undoubtedly concentrate the mind of bankers who seek to take extraordinary risks with other people’s money.
