Asset Losses of this Year's 3 Bank Failures Exceed 2008

This year’s three bank failures held $532 billion in assets, more than all of the lenders that failed in the financial crisis of 2008 that set off the Great Recession, The New York Times reports.

First Republic held $213 billion in assets under management, SVB had $209 billion, and Signature Bank had $110 billion at the end of last year.

By comparison, the 25 banks insured by the Federal Deposit Insurance Corporation (FDIC) that imploded in 2008, had a total of $526 in assets, adjusted for inflation.

That includes Washington Mutual, which held an excessive amount of subprime mortgages.

Of note, the 2008 figure doesn’t include the investment banking giants that crashed, including Lehman Brothers and Bear Stearns. To put the figures in further context, the U.S. banking system had $22.9 trillion in total assets in April 2023, double the $10.8 trillion in total assets in January 2008, Federal Reserve data shows.

Bank Runs

Still, the fact that just three failed regional banks held as much as 25 of the biggest banking giants of 2008 underlines the brutal hit the U.S. banking sector has taken this year.

Perhaps more jarring is the headline risk banks have faced so far this year: First Republic, SVB and Signature were the 2^nd, 3^rd and 4^th largest bank failures in U.S. history.

Washington Mutual, with $308 billion in assets when it failed in 2008, still ranks as the biggest bank failure in U.S. history, after the Great Depression.

When Silicon Valley Bank (SVB) and Signature Bank folded overnight in early March, worried customers of other regional banks, most notably First Republic, yanked their money for fear of bank runs becoming contagious.

First Republic Bank customers withdrew a staggering $102 billion in the first quarter, causing its stock to drop more than 75% year to date through Friday.

On Sunday, the FDIC stepped in to seize control of First Republic and oversee its sale to JPMorgan Chase. First Republic failed even after JPMorgan Chase, Bank of America and Citigroup poured $30 billion into the lender to stabilize it.

500 Failures

U.S. banks continued to collapse throughout the Great Recession and beyond. From 2008 to 2015, more than 500 FDIC-insured banks folded. Most were small or midsize regional banks that got absorbed by larger institutions after the federal government seized them.

After 2008, the U.S. government imposed stricter capital reserve requirements and controls on banks, resulting in far fewer bank failures in recent years. Before SVB, the last bank to fail did so in late 2020, as the pandemic was gripping the nation.

However, a weakness in the banking system that has not been addressed is more lenient regulatory oversight for midsize regional banks.

On Friday, the Federal Reserve’s office of supervision released a scathing report indicating that the Fed failed to catch gross mismanagement at SVB.

The Fed now says it will reevaluate its banking rules.