Why hundreds of U.S. banks may be at risk of failure (2024)

FAQs

Why are hundreds of US banks at risk of failing? ›

Consulting firm Klaros Group analyzed about 4,000 U.S. banks and found 282 banks face the dual threat of commercial real estate loans and potential losses tied to higher interest rates. The majority of those banks are smaller lenders with less than $10 billion in assets.

Since 2001, there have been 566 bank failures, with a significant spike during the 2008 financial crisis and ensuing Great Recession. Key causes of bank failures are undercapitalization, real estate lending vulnerabilities, interconnectedness allowing the crisis to spread, lack of diversification and rapid growth.

Thousands of banks failed during the Depression and loss of confidence caused anxious depositors to create "runs" on banks as they tried to withdraw their money before the banks collapsed.

Bank failures can have severe consequences, including the loss of people's savings and investments, the erosion of trust in the financial system, and even broader economic downturns.

Too big: The notion that some financial institutions are just too large, and distort markets or threaten financial stability. To fail: A bank is so interconnected with other institutions that its failure would create panic or broad financial instability.

Here's what typically happens. The FDIC announces that the bank is closed, and the FDIC is appointed as its receiver so it can help use the bank's assets to pay depositors and creditors. In most cases, the FDIC will try to find another banking institution to acquire the failed bank.

It indicates an expandable section or menu, or sometimes previous / next navigation options. Your money is safe in a bank, even during an economic decline like a recession. Up to $250,000 per depositor, per account ownership category, is protected by the FDIC or NCUA at a federally insured financial institution.

The news: Last Friday, Pennsylvania financial regulators seized and shut down Philadelphia-based Republic First Bank in the first FDIC-insured bank failure of 2024.

Citizens Bank of Sac City, Iowa, failed on November 3, 2023. Heartland Tri-State Bank failed on July 28, 2023. First Republic Bank failed on April 28, 2023.

As the Federal Reserve began raising rates in 2022, bond prices declined decreasing the market value of bank capital reserves, leading some banks to sell the bonds at steep losses as yields on new bonds were much higher.

Is the US bank in trouble? ›

Read the CFPB's order. Read the CFPB's 2022 action against U.S. Bank. In its previous action against the bank, the CFPB fined U.S. Bank $37.5 million for illegally accessing its customers' credit reports and opening checking and savings accounts, credit cards, and lines of credit without customers' permission.

Consulting firm Klaros Group analyzed about 4,000 U.S. banks and found 282 banks face the dual threat of commercial real estate loans and potential losses tied to higher interest rates. The majority of those banks are smaller lenders with less than $10 billion in assets.

Credit risk is the biggest risk for banks. It occurs when borrowers or counterparties fail to meet contractual obligations. An example is when borrowers default on a principal or interest payment of a loan.

In short, if you have less than $250,000 in your account at an FDIC-insured US bank, then you almost certainly have nothing to worry about. Each deposit account owner will be insured up to $250,000 — so, for example, if you have a joint account with your spouse, your money will be insured up to $500,000.

In 2023, America saw its highest amount of bank closings since the 2008 recession. The increase in mobile banking use, inflation and interest rates, and real-estate struggles all contributed to why 2023 experienced so many banks shutting their doors.

Based on the analysis of Bank of America's financial health, risk profile, and regulatory compliance, we can conclude that the bank is relatively safe from any trouble or collapse. The bank's financial performance has been stable, and its balance sheet shows a healthy level of capital and a diversified loan portfolio.

The most prevalent trend in the financial services industry today is the shift to digital, specifically mobile and online banking (more on each of those in a bit). In today's era of unprecedented convenience and speed, consumers don't want to have to trek to a physical bank branch to handle their transactions.

Bank runs can bring down banks and cause a more systemic financial crisis. A bank usually only has a limited amount of cash on hand that is not the same as its overall deposits. So, if too many customers demand their money, the bank simply won't have enough to return to their depositors.