Bank Failures in Brief – 2008 (2024)

FAQs

What was the bank failure in 2008? ›

The receivership of Washington Mutual Bank by federal regulators on September 26, 2008, was the largest bank failure in U.S. history. Regulators simultaneously brokered the sale of most of the banks's assets to JPMorgan Chase, which planned to write down the value of Washington Mutual's loans at least $31 billion.

Poor risk management can lead to significant losses, erode the bank's capital, and eventually lead to failure. Banks are highly dependent on the overall health of the economy. During a recession, banks are more likely to experience loan defaults, lower profits, and higher operating costs.

Since 2017, 15 banks have failed, with five banks failing in 2023 alone. Republic First Bank's demise on April 26 was the first failure of 2024. Its collapse renewed fears that last year's financial instability is still lingering.

The largest bank failure ever occurred when Washington Mutual Bank went under in 2008. At the time, it had about $307 billion in assets. During the uncertainty of the banking crisis, however, Washington Mutual experienced a bank run where customers withdrew almost $17 billion in assets in less than 10 days.

The catalysts for the GFC were falling US house prices and a rising number of borrowers unable to repay their loans.

From peak to trough, US gross domestic product fell by 4.3 percent, making this the deepest recession since World War II. It was also the longest, lasting eighteen months.

The short answer is no. Banks cannot take your money without your permission, at least not legally. The Federal Deposit Insurance Corporation (FDIC) insures deposits up to $250,000 per account holder, per bank. If the bank fails, you will return your money to the insured limit.

Many smaller banks, such as this one in Haverhill, Iowa, lacked sufficient reserves to stay in business and became no more than convenient billboards. Many of the small banks had lent large portions of their assets for stock market speculation and were virtually put out of business overnight when the market crashed.

If your bank fails, up to $250,000 of deposited money (per person, per account ownership type) is protected by the FDIC. When banks fail, the most common outcome is that another bank takes over the assets and your accounts are simply transferred over. If not, the FDIC will pay you out.

Read the CFPB's order. Read the CFPB's 2022 action against U.S. Bank. In its previous action against the bank, the CFPB fined U.S. Bank $37.5 million for illegally accessing its customers' credit reports and opening checking and savings accounts, credit cards, and lines of credit without customers' permission.

How many US banks are in danger? ›

Consulting firm Klaros Group analyzed about 4,000 U.S. banks and found 282 banks face the dual threat of commercial real estate loans and potential losses tied to higher interest rates. The majority of those banks are smaller lenders with less than $10 billion in assets.

Many of the small banks had lent large portions of their assets for stock market speculation and were virtually put out of business overnight when the market crashed. In all, 9,000 banks failed--taking with them $7 billion in depositors' assets.

In 2008, nearly 1,000 companies received bailout funds through the Troubled Assets Relief Program (TARP). Some of the biggest bank bailout recipients included Bank of America, Citigroup, JPMorgan Chase and Wells Fargo. Other businesses like General Motors and Chrysler also received funds through TARP.

Bank of America acquired Merrill Lynch in late 2008 during the financial crisis. The $50 billion deal came as Merrill Lynch was within days of collapse, effectively rescuing it from bankruptcy.

The brokerage unit of Lehman Brothers completed its liquidation process on September 28, 2022, after paying out over $115 billion to its customers and creditors over the course of 14 years.