Saturday, January 12, 2008

History of U.S. Bank Failures

The chart above shows annual bank failures from 1934-2007 using data from the FDIC. Several facts:

1. There have only been two years since 1934 when NO U.S. banks failed: 2005 and 2006.

2. Only 3 U.S. banks failed in 2007.

3. Besides the 2005-2007 period, there has never been another three-year period since 1934 when only 3 U.S. banks failed.

4. Even at the peak of the S&L banking crisis when more than 1,000 banks failed in 1988 and 1989, at a rate of more than 2 every business day for two consecutive years, the economy survived without going into a recession.

Bottom Line: The U.S. banking system is probably stronger and more stable today than at any time in U.S. history. A subprime crisis by itself will probably not be enough to pull the U.S. economy into a recession in 2008.

26 Comments:

At 1/12/2008 2:44 PM, Anonymous Anonymous said...

Citi looks to secure further $14bn in new capital

http://www.ft.com/cms/s/0/c6eb81e0-c083-11dc-b0b7-0000779fd2ac.html?nclick_check=1

Uh Huh

 
At 1/12/2008 2:59 PM, Anonymous Anonymous said...

DJ US Banks Index

http://bigcharts.marketwatch.com/industry/bigcharts-com/indchart.asp?bcind_ind=8355&bcind_sid=171501&bcind_period=5yr

Uh Huh

 
At 1/12/2008 3:47 PM, Anonymous Anonymous said...

Good graph. Certainly, 2007 was a rough year for the financial sector which appears to have weathered some of the worst of the credit crunch. We are not out of the woods yet but it does help to put the present in the context of previous banking crises.

 
At 1/12/2008 10:11 PM, Anonymous Fred said...

I don't hear of any problems with banks or credit unions or thrifts in my region. It seems the problems are concentrated in some really, really smart (snorf!) big boys like Countrywide, Citigroup, Merrill et. al.

Without the interwebs I likely wouldn't know any of this was happening.

 
At 1/13/2008 8:30 AM, Anonymous marmico said...

I am not nearly as sanguine as our host when it comes to the health and stability of the commercial banks (CBs).

The CBs are knee high in the real estate "alligator pool". Some tidbits to chew on.

1. Real estate loans (REL) are at historic highs relative to total loans. Using year end 2006 data, REL is 58% of total loans, up from 45% in 2000. For contextual purposes, REL never exceeded 50% of total loans during the height of the S&L debacle. See: FDIC Table CB11

2. The mid-tier CBs became heavily exposed to commercial real estate (CRE) and construction and development (C&D) loans in an attempt to improve their net interest margins. See C&D Loan Concentrations

The investment banks/brokerages have been the first group to report that their legs have been chewed off to the knees but the CBs are up next. CRE busts lag residential real estate busts by 4-6 quarters. The day of reckoning is at hand.

 
At 1/13/2008 7:27 PM, Blogger juandos said...

Thanks for the Banks Index chart anon @2:59 PM...

Hmmm, can't help but wonder if banks and lending institutions are crying their version of Katrina in order to pull in federal funding to cover their own incompetence...

 
At 1/14/2008 1:54 AM, Anonymous Frederick Davies said...

So, in the US there have only been two years since the 1930's when no banks have gone under; then could someone explain to me why the UK government gets all hysterical about a single bank going down? What is so special about Northern Rock that warrants such a level of intervention? Please, someone explain it to me because I just do not get it.

 
At 1/14/2008 11:35 PM, Anonymous Anonymous said...

"Banks haven't lost this much money, in relative terms, since the Great Depression, said Richard Sylla, a professor of the history of financial institutions and markets at New York University's Stern School of Business."

From "Wall Street's $35 Billion Writedown Squeezes Profits"

http://www.bloomberg.com/apps/news?pid=20601109&sid=a1r8gcqTEmD4&refer=home

 
At 2/26/2008 3:21 PM, Anonymous Anonymous said...

What are you talking about? The economy DID go into a recession in 1989-1991, and we have been sliding into a new one since 1/2006.

 
At 3/09/2008 11:55 AM, Anonymous Rob said...

It's funny you should write this because the banks are sure trading like more than one of them is going to fail.

 
At 6/15/2008 2:24 PM, Anonymous Anonymous said...

In my small area of the woods, in upstate NY, there is quite a few banks closing branches and being bought out by other banks. My research on the assets and liabilities of current active banks in the area, I found even the consolidated banks are showing increasing debt ratio.

 
At 7/11/2008 6:50 AM, Blogger Gatersaw said...

The FED extended overnight borrowing throughout 2007 so there was no reason for any banks to collapse. Secretary Paulson stated to Congress July 9th 2008 that financial institutions must be allowed to fail. This means all those banks that took the 400+billion in overnight lending will now fail and 2008 will have much more failures.

 
At 7/23/2008 3:39 AM, Blogger mrmax said...

Deposits in the GB banks are only insured for 25K pounds which will go up to 35K. I live in NZ and there is NO insurance for deposits , so guess where my money is going to go ?

 
At 9/25/2008 7:20 PM, Anonymous ex SandL guy said...

Professor: I believe a very interesting time line would be to relate the dollars in insured bank failures to Presidential terms. Because of the consolidation of the financial industry, numbers of failures becomes increasingly inaccurate as a measure of the financial indicator. I am suspicious that the assets in failure would track Reagan, Bush I and Bush II very closely, giving greater debunking to the value of deregulation. Just a thought.

 
At 10/01/2008 9:17 AM, Anonymous Anonymous said...

Curious to know in how many of these failures the auditors were sued...any ideas?

 
At 10/03/2008 7:43 AM, Anonymous Gilbert said...

Blogs make quite an interesting source for research into popular expectations on crises and recovery. (I'm writing from 3 Oct 2008 - post Lehman/AIG/Merrill/Bear Stearns)

 
At 10/27/2008 12:38 AM, Blogger until dawn said...

no offense, but why not consider removing this post? i mean, we had 16 bank failures so far this year?

 
At 11/08/2008 2:10 AM, Anonymous Anonymous said...

Its now 19 bank failures. Nov 07, 2008. 3 in California

 
At 12/18/2008 12:17 PM, Anonymous Anonymous said...

It's December 18, 2008. In January 2008 there were 5 investment banks in this country. Today, there are none.

Stock market has dropped 40% since this blog went up. Cities and states are bankrupt.

GM, Ford and Chrysler will be bankrupt in 2009.

Bank failures totally 45 so far this year will be more than 1,000 next year and economic collapse hits the US due to Fed funds rate of 0% and foreign funds no longer financing US deficit that will balloon to over $1 trillion, not including the tens of trillions being creeated out of thin air by the FEDs alphabet soup of money creation facilities.

Bend over and kiss your financial butt goodbye. The US as we have known it is history.

 
At 3/09/2009 8:08 PM, Anonymous Anonymous said...

pretty funny to read this now..

I had predicted over $1.5 trillion in losses 2 years ago.. it was simple math.. 7,0000,0000 foreclosures in 3 years 07, 08, 09.... times the national average value of a house at $200,000 and you should be able to see how this is/was going to go..
$1,400,000,000,000

and that's NOT the end of it.. there will probably be another 2 million foreclosures in 2010

it's pretty simple math

 
At 4/04/2009 3:43 AM, Anonymous deadapostle said...

pretty funny to read this now..

I had predicted over $1.5 trillion in losses 2 years ago.. it was simple math.. 7,0000,0000 foreclosures in 3 years 07, 08, 09.... times the national average value of a house at $200,000 and you should be able to see how this is/was going to go..
$1,400,000,000,000

and that's NOT the end of it.. there will probably be another 2 million foreclosures in 2010

it's pretty simple math


If only it were that simple. Credit default swaps are 50 times that amount, and there are countless other calamities in the mix. I really appreciate the blogger's integrity for leaving this post up. I was looking for the chart, but seeing the optimism of the past really makes me appreciate the enormity of our current crisis. Hummer and Saturn are virtually dead brands, 21 banks have failed so far this year (although we're due for another one or two this weekend), and the stock market has dipped down to a loss of 54% from its previous peak of slightly over 14,000. Just yesterday we rejoiced at the positive news that the DOW was "up" to 8000.

This blog post is like a time capsule. I'm afraid the next person is going to post that global unemployment has reached 85% and there are zombies plaguing Western Europe.

 
At 4/18/2009 5:58 PM, Anonymous Anonymous said...

Would you like to revise your assessment?

 
At 7/06/2009 4:56 PM, Blogger Dave Narby said...

Thought it was time to revisit one of the many bank failure posts.

Right now, July 6th 2009, we stand at 57.

Would appreciate a new post addressing this subject...

 
At 7/06/2009 4:57 PM, Blogger Dave Narby said...

My bad, make that 52 failures.

 
At 12/22/2009 5:07 AM, Anonymous Anonymous said...

Good thing you were running the Fed. Your predictions were WAY off.

 
At 4/25/2010 2:47 PM, Anonymous Anonymous said...

"I had predicted over $1.5 trillion in losses 2 years ago.. it was simple math.. 7,0000,0000 foreclosures in 3 years 07, 08, 09.... "

Simple math? What decimal system are you using?

CCC

 

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