New Frontier BankGreeley, CO-based New Frontier’s failure wasn’t the largest in history, but it’s the largest in 2009—so far. The FDIC estimates it will be on the hook for close to $670 million dollars for this little failure, which had $2.5 billion in assets and $1.5 billion in deposits. New Frontier was one of 23 banks to close in April 2009.
The Bank of Credit and Commerce InternationalBCCI, founded in Karachi, Pakistan in 1972, failed in July 1991 because of widespread fraud. Once the 7th largest private bank in the world and holding over $20 billion USD in assets, regulators who investigated the firm found that it had “deliberately setup operations to avoid detection to commit fraud on a wide scale.” Lawsuits were filed against everyone from the bank’s auditors to a major shareholder from Abu Dhabi. It would become known as the $20 billion dollar heist.
Integrity Bank, GeorgiaAlpharetta, GA-based Integrity Bank, which failed last fall, touted their strong “faith-based culture.” The FDIC estimates the bank lost up to $350 million on $1.1 billion of assets, putting receivership losses at a whopping 35%. That may be the highest loss percentage in the last 30 years—and a true test of faith, especially for the individual who owned roughly 25% of the bank’s assets.
Herstatt Bank, GermanyHerstatt Bank has a special place in bank failure lore, triggering a debacle that resulted in a new international regulation.
German regulators seized the ailing Herstatt and forced it to liquidate on June 26, 1974. The same day, other banks had released Deutsch Mark payments to Herstatt, which was supposed to exchange those payments for US dollars that would then be sent to New York. Regulators seized the bank after it received its DM payments, but before the US dollars could be delivered. The time zone difference meant that the banks sending the money never received their US dollars.
This “Herstatt Debacle” led to a new continuous linked settlement (CLS) protocol, which enables foreign banks to trade currencies without a settlement risk if one party or the other fails in their obligation.
The Hokkaido Takushoku Bank, Ltd.Possibly the most notable failure of the Asian financial crisis, “Hokutaku” went bankrupt in 1997, almost 100 years after its inception as a “special bank” to promote development on the island of Hokkaido. The bank specialized in long term, low-interest loans and debt insurance that would help grow specific sectors on the island, like fishing and agriculture.
In 1939, the government deregulated Hokutaku, allowing it to offer short-term financing and bank accounts. The bank grew and eventually became involved in risky real estate investments during Japan’s late-1980s real estate bubble. The rest, as they say, is history.
Southeast Bank of MiamiThe FDIC seized the Southeast Bank of Miami, the second largest bank in Florida, in September 1991. A slump in the regional commercial real estate market, combined with 1980s S&L Crisis fallout, had left the bank reeling. The FDIC seized and sold the bank to Charlotte’s First Union Corp. on September 19, 1991.
Notably, the South Florida community was outraged at the takeover. Southeast had been their only hometown bank, as well as the biggest nonprofit donor in the region. Southeast was still within minimum capital standards when the FDIC flipped it in 1991, a fact emphasized by the record $200 million in profits the FDIC made in 1997 off former Southeast loans. Critics claim the feds shut down the bank too quickly, assuming its losses would become too expensive if they waited.
. New York’s Bank of the United StatesIn December of 1931, New York’s Bank of the United States fell victim to “contagion,” when a string of unrelated banks fail for unrelated reasons. The bank’s name had something to do with it. Many New Yorkers felt that if the bank of the United States could fail, then any bank could fail.
At the time of the collapse, the bank had over $200 million in deposits, making it the largest single bank failure in the nation’s history…until the next one.
Franklin Square National BankLong Island’s Franklin National Bank has a story fit for Hollywood. Founded in 1926, the bank piloted now-standard features such as hiring high school students as tellers, building drive-up teller windows, and offering bank credit cards.
The bank’s integrity went out the window when shady financier Michele “The Shark” Sindona purchased a controlling stake. Sindona used Franklin to launder money and build a Mafia-linked banking empire in the United States. Within two years, currency speculation, bad loans, and fraud drove Franklin into a fire sale. The Feds sent several bankers to jail, Sindona’s banking empire collapsed, and a fascinating chain of Mafioso events eventually led to Sindona being murdered in his jail cell with a cyanide capsule.
Home Bank of CanadaHome Bank of Canada’s failure is a study in whistleblowers and cooking the books. The manager of the Winnipeg Branch, William Machaffie, told directors in 1914 that adding unpaid interest to a principal, calculating the interest as profit, then using it to pay dividends to major shareholders comprised “cooking the books.” The bank fired him for speaking up.
Nine years later, amidst an economic crisis, investors ran on the bank, and it closed. Canadian officials arrested ten Home Bank executives for fraud and “concurring with false returns,” a.k.a. cooking the books. According to Wikipedia, 60,000 prairie farmers permanently lost their savings after the bank’s collapse.
The Creditanstalt, ViennaWhile the Great Depression may not have affected European banks as badly as those in the U.S., the Creditanstalt-Vienna is one notable example of a large healthy bank that failed. Founded by the Rothchild family in 1855, Creditanstalt became the largest bank in Austria-Hungary.
A poor economy and failure to deal with dwindling deposits forced it into bankruptcy in 1931. Its failure sent shockwaves through in Europe, causing bank failures in Germany, Hungary, Czechoslovakia, and Poland.
Bright Banc Savings AssociationOnce a Texas-sized giant with more than $5 billion in assets, Bright Banc was controlled by H.R. “Bum” Bright, former owner of the Dallas Cowboys. The government seized it in 1989 after loan losses and a plummeting oil market caused it to collapse. Federal regulators sold off pieces of the bank in one their largest “clean bank” procedures ever, successfully retaining troubled assets, then selling them to private bidders after they gain value.
Long-Term Credit Bank of JapanLTCB was one of the top three banks in Japan responsible for postwar economic growth. In 1989 it was considered the 9th largest company in the world by asset value. Then Japan’s asset bubble burst, poisoning LTCB with more than $19.2 billion in bad debt. In 1998, the Japanese government nationalized LTCB, then restructured it as a commercial bank named Shinsei Bank.
GoldomeEven the cool name couldn’t help Goldome, New York State’s largest savings institution in 1991, find investors to keep its doors open. A combination of bad acquisitions and lack of funds made the company the 6th largest bank failure in history—at the time. Keycorp and First Empire picked up the pieces of the bank.
Silverado Savings and LoanWhat good is running a bank if you can’t give yourself and your buddies a loan? Although he was never convicted of wrongdoing, Neil Bush, son of then Vice President George H.W. Bush, was forced to pay a $50,000 fine and banned from banking activities for his role in taking down Silverado, which cost taxpayers $1.3 billion. The US Office of Thrift Supervision determined that Neil Bush had engaged in numerous “breaches of his fiduciary duties involving multiple conflicts of interest” by giving himself and his business partners loans of over $200 million USD without notifying the Silverado Board.
Gibraltar SavingsIn April 1989, the Federal Home Loan Bank Board and the Federal Deposit Insurance Corporation took control of Gibraltar Savings of Beverly Hills, Calif., and Gibraltar Savings F.A. of Bellevue, Wash. Even though they had more capital than is required by regulators, the Board said they had to take action, ”because Gibraltar was operating in an unsafe and unsound condition and had substantially dissipated their assets.”
Northern RockNorthern Rock was a stable bank until the liquidity crisis of 2007. During the liquidity crisis of 200, Northern Rock could not acquire backing from institutional lenders, who themselves were reeling from the US subprime mortgage meltdown. The Tripartite Authority (The Bank of England, the FSA and HM Treasury) lent the bank 3 billion pounds on September 12, 2007.
After the news broke, Northern Trust’s stock fell 32%. Depositors ran on the bank. Unlike a classic bank run, which throws a bank into crisis, this one followed a crisis and compounded a preexisting liquidity problem. On February 17, 2008, the government nationalized Northern Rock.
Sachsen LB, GermanyIn August of 2007, board members reported that even though Sachsen was involved in Irish and US mortgage markets, they were not exposed to sub-prime loans and held sufficient liquidity for the long term. Then, in September, worldwide markets crashed. Within the next three months, most of the board was fired or resigned. Inside consultants accused Sachsen LB of blatant accounting errors and no “visible action” to reduce risks.
On the 13th of December 2007, Sachsen LB was taken over by Landesbank Baden-Wuerttemberg (LBBW), with financial guarantees of roughly EUR2.75 billion by the state of Saxony.
NetbankIn September of 2007, NetBank was the largest US bank to fail since the S&L Crisis in the early 1990s. The Georgia-based bank, launched during the dot-com boom of the late 1990s, had $2.5 billion in assets and was known as the “Internet only” banking leader. Poor underwriting standards coupled, underperforming loans and subprime exposure led to Netbank’s meltdown.
MCorpIn March, 1989, MCorp was the 36th largest US bank and the second largest banking entity in Texas. Its heavy exposure to bad energy and real estate loans pushed it into insolvency. At the time of failure, MCorp had total assets of $18 billion. It cost the FDIC $2.8 billion to the resolve this bank.
Bank Of New EnglandThe Bank of New England (BNE), along with its two sister banks, Maine National Bank and Connecticut Bank and Trust, failed on January 6, 1991. In a surprising move for the time, the FDIC decided to insure all deposits- even if they exceeded the $100,000 insurance limit.
BNE was the largest bank in the New England area. With its sister banks, it had assets totaling $21.8 billion and deposits totaling $19 billion. Bad loans and heavy ties with bond creditors BNE led to its downfall. A settlement provided $140 million to creditors.
American Savings And LoanStockton, CA-based American Savings and Loan reported losses of $107.5 million during the second quarter of 1984. Customers panicked and withdrew $6.8 billion from the bank. Vultures, including the Ford Motor Co., circled around the bank, looking to buy it. The Federal Home Loan Bank Board blocked Ford from buying the bank (anyone see a familiar pattern here?) and sold the bank to Texas billionaire Robert M. Bass. The FDIC contributed a total of $5.7 billion to the bank’s bailout—more than 10% of its deposit insurance fund at the time—making it one of the most expensive rescues of the Savings and Loan crisis.
First Republic of TexasFirst Republic of Texas (not to be confused with San Francisco’s First Republic Bank, which is alive and well) was the largest bank to fail during the savings and loan crisis in the 1980s. First Republic of Texas is famous for the “electronic bank run” that led to its failure. In 1988, a sour Texas real estate market and a balance sheet full of nonperforming loans made investors lose faith in the bank. The majority of the bank’s depositors withdrew their money through wire transfers and ATMs.
The bank failed in 1988 with total assets of $33.4 billion. Its collapse cost the FDIC $3.9 billion, making it the most expensive bank failure in US history—at the time.
Continental Illinois National Bank And TrustThe concept of “too big to fail” started with Continental Illinois National Bank and Trust. In 1984, it was the 6th largest bank in the U.S., with nearly $40 billion in assets. The bank collapsed in 1984 due to losses stemming from recently acquired Penn Square Bank.
In response, the FDIC infused capital and bought preferred shares, basically nationalizing the bank. Continental’s huge number of assets, which included the largest commercial and industrial loan portfolio in the country, made it too big to fail. In addition to giving guarantees to depositors, the FDIC infused billions of dollars to recapitalize the bank.
WaMuIn September 2008, sparked by fears of the WaMu’s collapse, depositors withdrew roughly $16 billion dollars from the bank over a period of ten days. Washington Mutual, then the sixth-largest bank in the country, lost 10% of its total deposits during this slow motion bank run. The FDIC took receivership of the bank, then sold its subsidiaries to JP Morgan Chase for $1.9 billion. In the period of one month, WaMu went from the Wal-Mart of banking to one of the largest bank failures in history.
IndyMacLos Angeles-based IndyMac used to be the largest loan originator in the country. Founded in 1995 as Countrywide Mortgage Investment, IndyMac fueled its aggressive growth through risky loan products like Alt-A mortgages, concentrating on inflated real estate markets like California and Florida, and relying heavily on borrowed funds, especially from the FHLB (Federal Home Loan Bank).
The U.S. woke up to the first and largest bank failure in recent memory on July 11, 2008, when the FDIC seized the bank’s assets (over $30 billion) and closed its doors.
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