The History of Bank Failures: Lessons Learned from the Collapse of Silicon Valley Bank in 2024

Bank failures have been a recurring theme in the financial system for centuries. The recent collapse of Silicon Valley Bank, which started in early 2023, is the latest reminder of this. Bank failures can cause significant disruptions to the economy, and they can have far-reaching effects on businesses and individuals.

We’ll take a look at some of the most significant bank failures in history, including Silicon Valley Bank, and explore their causes and effects.

Significant Bank Failures in History

Continental Illinois National Bank and Trust — 1984

Continental Illinois was a large bank based in the United States that collapsed in 1984 due to its exposure to bad loans. The bank’s collapse was a significant event in the financial industry, and it led to a broader discussion about the role of government in managing financial crises.

• Loss: Approximately $40 billion

Bank of Credit and Commerce International (BCCI) — 1991

BCCI was a global bank that collapsed in 1991 due to its involvement in money laundering and other illegal activities. The bank’s collapse was a significant event in the financial industry, and it led to a broader discussion about regulation and oversight in the banking sector.

• Loss: Approximately $20 billion

Barings Bank — 1995

Barings Bank was a British investment bank that collapsed in 1995 due to the actions of a rogue trader. The bank’s collapse was a significant event in the financial industry, and it led to a broader discussion about risk management and control in financial institutions.

• Loss: Approximately $1.4 billion

Yamashiro Bank — 1998

Yamashiro Bank was a regional bank based in Japan that was known for its high-risk lending practices. In 1998, the bank collapsed due to its exposure to bad loans, and it was eventually nationalized by the Japanese government. The collapse of Yamashiro Bank was a major event in Japan, and it led to a broader financial crisis that lasted for years.

• Loss: Approximately $250 billion

Lehman Brothers — 2008

Lehman Brothers was a global investment bank that collapsed in 2008 due to its exposure to subprime mortgages. The collapse of Lehman Brothers was a significant event in the 2008 financial crisis, and it had a profound effect on the global economy. The bank’s failure led to a freeze in credit markets, which contributed to a severe recession that lasted for years.

• Loss: Approximately $600 billion

Washington Mutual — 2008

Washington Mutual was a large savings and loan bank based in the United States. The bank collapsed in 2008 due to its exposure to subprime mortgages, and it was eventually acquired by JPMorgan Chase. The collapse of Washington Mutual was a significant event in the 2008 financial crisis, and it contributed to a broader freeze in credit markets.

• Loss: Approximately $307 billion

IndyMac Bank — 2008

IndyMac Bank was a regional bank based in the United States that collapsed in 2008 due to its exposure to subprime mortgages. The bank’s collapse was a significant event in the 2008 financial crisis, and it contributed to a broader freeze in credit markets.

• Loss: Approximately $32 billion

Silicon Valley Bank — 2023

Silicon Valley Bank is a US-based bank that focuses on providing financial services to technology and innovation companies. In early 2023, the bank started experiencing significant financial difficulties due to its exposure to bad loans and its overreliance on the technology sector. The bank’s troubles have caused significant concern among investors and market participants, and there are fears that its collapse could have a significant impact on the wider economy.

SVB is said to hold approximately $212 billion.

Putting It All Together

Bank failures have been a recurring theme in the financial industry for centuries. While some bank failures are due to fraud or criminal activity, most are the result of poor risk management, overreliance on certain sectors or markets, and other factors.

The collapse of Silicon Valley Bank in 2023 is a reminder that even banks with a strong reputation and a focus on innovation can be vulnerable to financial difficulties. It is essential for regulators and market participants to remain vigilant and ensure that banks are appropriately regulated and managed to prevent future bank failures.