Want some good news? During calendar year 2018, there were exactly zero bank failures in the United States. Zero. Nil. Nada. Zilch. The last time there were no U.S. bank failures was waaaay back in 2006. Needless to say, a lot has happened since then. But the best part of all is that because of a strong economy, and because of the purifying effects of the financial refiners’ fire, the banking sector is as healthy as it has been in many years. Hugh Son’s January 10, 2019 CNBC article about the U.S. banks’ current healthy state can be found here.
It is relatively unusual for there to be zero bank failures during a calendar year. Indeed, 2018 was only the third time since the FDIC was founded in 1933 that there have been zero bank failures during a calendar year period.
It seems like only yesterday that we were in the midst of a seemingly non-stop wave of bank failures. As recently as 2010, there were 157 bank failures. That was in the midst of a tough period in the U.S. banking sector – and in the rest of the U.S. economy. Between January 1, 2007 and December 1, 2017, 537 banks in the U.S failed – 465 between 2008 and 2012 alone. The bank failure rate declined significantly in recent years; there were only eight bank failures in 2016, and only six in 2017. (Refer here for a comprehensive list of the U.S. banks that have failed since 2000.)
The number of banks rated as problem institutions has also declined dramatically from the depths of the financial crisis. (The FDIC describes a bank as a “problem institution” if the agency rates the bank as a “4” or a “5” on its 1 to 5 scale of financial health. The FDIC does not publish the names of the banks it has rated as problem institutions.)
At its peak (or perhaps, at its trough), in 2010, the FDIC rated 884 banks as problem institutions, representing $390 billion in total assets. As of September 30, 2018 (the date of the quarterly period for which the FDIC most recently issued a Quarterly Banking Profile), there were only 71 banks (out of 5,477 reporting institutions) ranked as problem institutions, representing $53 billion in assets. The 71 total number of problem institutions as of September 30, 2018 is the lowest number of problem institutions since year-end 2006, when there were 50.
In commenting on the current relatively healthy state of affairs, and in particular on the lack of any bank failures in 2018, the financial reporter Hugh Son attributed the banks’ current health state to “the U.S. economic expansion, corporate tax overhaul, and post-financial crisis rules that boosted safety.” According to Son, the six biggest U.S. lenders were on track to generate more than $100 billion in profit, reportedly an all-time record.
As striking as the figures are for the numbers of failed institutions and the numbers of problem institutions during the depths of the financial crisis, those bank failure figures are not the worst the country has ever seen. Things have been worse — much worse.
During the S&L crisis in the 80s and 90s, a lot more institutions failed. In 1989 alone, there were 534 bank failures, almost as many in one year as there were in the ten-year period during the recent financial crisis of 2007 to 2017 (537).
But that isn’t the worst. Things were much, much worse during the Great Depression. In 1933, approximately 4,000 banks failed –after more than 2,000 banks had failed in 1931 and almost 1,500 banks had failed in 1932. To put that into perspective, more banks failed in the period 1931-1933 than the total number of reporting financial institutions in existence now.
I know these historical bank failure figures are sobering. They are intended to be. It is great that there were no bank failures in 2018. But this no time to let up on the vigilance. Just as things have cycled back to the good in the more recent years, the long-term track record suggests the possibility that the cycle could turn down again sometime in the future.
Not to depress anybody, but just think about how short a time it was between the end of 2006, the last year in which there were zero bank failures, and the near meltdown of the entire global financial system in September 2008.
Things can change.
Hat tip to the Calculated Risk blog (here) for the historical bank failure statistics.