top of page
  • MAP Asia Pacific Ltd

The Largest U.S. Bank Failures in Modern History

The Largest Bank Failures in Modern History

Silicon Valley Bank cratered at warp speed—and within the last week, two other institutions have folded as well.

One of these, Signature Bank, is the third-largest bank casualty in U.S. history. The other is Silvergate Capital, a bank that announced it would close operations and return assets to depositors. This bank was highly exposed to the crypto sector.

While emergency measures were taken by U.S. banking regulators to stem contagion risk, many are left wondering what could happen next. With data from the Federal Deposit Insurance Corporation (FDIC), the above graphic charts over 500 bank failures since 2001.

Top 20 Bank Failures Since 2001

The last time a major banking collapse took place, a flood of bank shutdowns followed.

After banks reported billions in subprime-mortgage losses in late 2007, sentiment began to shift. As losses snowballed in 2008, it triggered a run on shadow banks—institutions that aren’t regulated like banks but perform similar actions.

Back then, banks and shadow banks were holding foreclosed mortgages as collateral. At the time, it was also difficult to determine the value of these assets. A credit crisis spurred a wave of bank collapses.

Here are the top 20 bank failures over the last two decades:

The banks collapsing in more recent days have been holding U.S. Treasuries as collateral. These have declined in value as interest rates have spiked. Their customer bases are also concentrated, which decreases diversification. Just as Silicon Valley Bank served a niche clientele of venture-backed tech startups, Silvergate Capital worked with mainly high-risk crypto firms.

As these banks poured deposits in long-term bonds when interest rates were historically low, it was a reflection of faulty risk management and the assumption that interest rates would remain at these levels.

What Happens Now? U.S. banking regulators have shown that they’re serious about preventing any future fallout. Together, the Federal Reserve, U.S. Treasury, and the FDIC took emergency measures to enable all Silicon Valley Bank and Signature Bank depositors access to their funds on Monday March 13. This was after an auction over the weekend that resulted in no buyer.

JPMorgan Chase, Morgan Stanley, and Royal Bank of Canada are among banks that had initially shown interest but stepped back after conducting due diligence. A second auction is now being scheduled.

Regulators took swift action to repay depositors, citing how Silicon Valley Bank and Signature also brought about a “similar systemic risk exception”. While both banks were not found on the Financial Stability Board’s list of systemically important banks, regulators took action. Interestingly, the Federal Reserve did an assessment of banks that would pass a recession stress test last year. Both Silicon Valley Bank and Signature Bank were not found on the list.



Recent Posts

See All
bottom of page