Bank Failures and Resolution

When a bank becomes insolvent or cannot meet withdrawals, its chartering regulator closes it and appoints the Federal Deposit Insurance Corporation as receiver, usually on a Friday so the bank can reopen under new ownership on Monday. In most cases the FDIC sells the deposits and good assets to a healthy bank in a purchase and assumption deal, and if no buyer appears it pays insured depositors directly, up to 250,000 dollars per depositor, per bank, for each ownership category. A 1991 law requires the FDIC to choose the resolution that costs the Deposit Insurance Fund the least.

Waves of failures have shaped the system. About 9,000 banks failed in the early 1930s, leading to deposit insurance in 1934. More than 1,000 savings and loans failed in the 1980s and early 1990s, at a cost to taxpayers of over 120 billion dollars. Nearly 500 banks failed from 2008 to 2013, including Washington Mutual, the largest in history. The Dodd-Frank Act of 2010 added an orderly liquidation authority for giant financial companies. In March 2023 Silicon Valley Bank and Signature Bank collapsed after runs by uninsured depositors, and regulators invoked a systemic risk exception to protect all their deposits, paid for by a special assessment on large banks, while the Federal Reserve opened an emergency lending program. First Republic Bank failed that May.

Failures since have been small. Six banks failed in 2026 through September, the largest with about 736 million dollars in assets, compared with more than 500 billion dollars in assets at the banks that failed in 2023. Critics of the 2023 rescue say protecting uninsured deposits encourages risk taking and amounts to a bailout, and some propose higher insurance limits for business accounts. Others say swift action prevented a wider panic. Debates continue over capital rules, supervision of midsize banks, and whether the 2025 easing of some regulations raises the risk of future failures.