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

FAQs

Why are banks failing in the US? ›

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.

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.

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.

A bank run most often arises from public fear pushing a bank into insufficient liquidity rather than actual insolvency. A bank run can push an institution into bankruptcy if the bank cannot maintain a regulatory equity requirement.

Republic First Bank reported unrealized securities losses in excess of its equity as early as June 2022. State regulators closed Republic First Bank in April 2024, marking the first bank failure of the year.

The Consumer Financial Protection Bureau says the Minneapolis-based bank failed to provide consumers access to unemployment benefits at the height of the pandemic. One of the largest banks in the nation is in trouble with the federal government over its conduct with consumers during the height of the Covid-19 pandemic.

Economic Factors: Higher interest rates also often lead to slower economic growth, meaning people are spending less money. Inflation, recessions, and housing market crashes can all cause banks to shut down.

For the most part, if you keep your money at an institution that's FDIC-insured, your money is safe — at least up to $250,000 in accounts at the failing institution. You're guaranteed that $250,000, and if the bank is acquired, even amounts over the limit may be smoothly transferred to the new bank.

What would happen if Bank of America fails? ›

In most cases, the FDIC will try to find another banking institution to acquire the failed bank. If that happens, customers' accounts will simply transfer over to the new bank. You will get information about the transition, and you will likely get new debit cards and checks (if applicable).

Banks during recessions FAQs

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.

These banks were brought down by customers withdrawing deposits en masse, both because many were tech or crypto businesses that needed money to cover losses, and because there were better savings rates available elsewhere.

A run on deposits (leaving the bank without the cash to pay customer withdrawals). Too many bad loans/assets that fall sharply in value (eroding the bank's capital reserves). A mismatch between what the bank can earn on its assets (primarily loans) and what it has to pay on its liabilities (primarily deposits).

For the most part, if you keep your money at an institution that's FDIC-insured, your money is safe — at least up to $250,000 in accounts at the failing institution. You're guaranteed that $250,000, and if the bank is acquired, even amounts over the limit may be smoothly transferred to the new bank.

Some, especially in the trans-Appalachian West, were suspicious of banks because they distrusted the paper money issued by them and because banks controlled credit and loans. To them, the Bank of the United States was the worst of them all: a greedy monopoly dominated by the rich American and foreign interests.