When Silicon Valley Bank and Signature Bank collapsed in a matter of days, it was a stark reminder to the American people that U.S. banks do fail. More than that, while all uninsured depositors were spared in these two bank failures, that’s not always the case.
Given the media storm around this month’s bank failures, it would be fair to think that it must not happen very often. But bank failures happen nearly every year.
More than 500 banks have failed in the U.S. since the year 2000. And while not a penny of insured funds has been lost in the history of the Federal Deposit Insurance Corporation, depositors don’t always get all of their money back.
The FDIC provided Straight Arrow News with a list of 76 institutions dating back to 1993 where uninsured depositors lost money in a bank failure. Some of the total overall loses are relatively small, but some number in the millions.
- When Texas-based Enloe State Bank failed on May 31, 2019, less than half a million of the more than $30 million in deposits were uninsured. The government failed to secure 61% of the uninsured deposits, totaling a customer loss of $279,560.
- But when The Columbian Bank & Trust Co. failed on Aug. 22, 2008, uninsured deposits totaled more than $26 million, and 95% of uninsured deposits were lost, totaling $25,252,158 in customer funds.
So why, if banks fail nearly every year, are Silicon Valley Bank and Signature Bank’s failures garnering so much media attention and contagion risk? It’s partly because of the sheer size of the banks.
The total assets of the two failed banks nearly match the assets of all failed banks in 2008. But unlike many before them, no one lost a dime.
When Woop Insurance co-founder and SVB customer Eric Foster learned of the bank run on March 9, he said his company attempted to withdraw its funds, but at that point the bank couldn’t honor it.
With millions in uninsured funds locked away and about 25 full-time employees awaiting payroll, Foster went into fix-it mode to make sure the business stayed afloat. Armed with an emergency plan, within days it was clear they wouldn’t need to continue carrying it out. The federal government announced customers would get full access to their funds and Woop Insurance decided to stick with the then-federally controlled bank.
“I still feel safe, if anything, I more so trust the American government for stepping in as they did,” Foster said. “The reality was like, did I have a few really crappy days? What is the downside outside of a handful of days and additional work for me. I did not lose a single dollar nor did my business lose a single dollar outside of time spent.”
That said, Foster added that he believes there should have been tighter regulations on how SVB managed its assets, calling its decision to heavily invest in long-term bonds “flat-out illogical.”
Federal regulators are investigating the collapse of SVB and will publicly release findings on May 1, including any missteps made by regulators who identified serious risk concerns at SVB back in 2021.
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