Academic

Bank Failures in Historical Perspective

By Kim Krawiec

Calculated Risk had a great analysis of bank failures over the weekend.  On Friday, the FDIC closed four banks -- Temecula Valley Bank, Temecula, California; Vineyard Bank, National Association, Rancho Cucamonga, California; BankFirst, Sioux Falls, South Dakota; and First Piedmont Bank, Winder, Georgia ? bringing the total number of FDIC bank closures for the year to 57.  See here for the FDIC's full list of failed banks since October 1, 2000.  If the pace continues, we?re on track for close to 100 FDIC bank closures for 2009 (See Chart 1 at right).  (Click on charts to enlarge them)

Although that?s not a number to feel good about, it?s helpful to put today?s FDIC closures in historical perspective.  As shown in CR?s next chart (below), which covers the entire FDIC period (1934 to present) bank closures were far more numerous during the Savings & Loan Crisis.  There were 28 weeks during which regulators closed 10 or more banks.  During 7 of those weeks, there were more than 30 closures, and ?the peak was April 20, 1989, with 60 bank closures.?  (There was some multiple counting during this period, but CR puts the effect as minor).

However, this third graph below (note the changed y-axis) includes the 1920s, before the FDIC was created.  The number of bank failures is estimated at 4000 for the year 1933.  In fact, 500 bank failures per year was commonly seen during the 1920?s, and depositors typically lost 30% to 40% of their deposits in the failed institutions.

As CR notes, the number of banks isn't the only relevant measure of distress from bank closures. Many banks today have more branches, and far more assets and deposits.  Nor do bank closures paint the whole picture of economic crisis ? in the current financial crisis, many of the most spectacular failures or bailouts have been of non-bank financial institutions.  

See Calculated Risk for more and for links to the source of the FDIC and pre-FDIC data.

Full post as published by The Faculty Lounge on July 22, 2009 (boomark / email).