The Failures of Financial Institutions
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It is particularly amazing to see how surprised market participants are whenever a financial crisis occurs. This could be seen during the collapse of Silicon Valley banks and the ongoing anxiety that surrounds the United States regional banks. However, fresh players are unaware that banks do experience failures more often than they realize.
Yamashiro Bank, 1998
In the year 1998, Yamashiro Bank crashed, and it was thought of as the biggest that has ever occurred. At the time of the collapse, Yamashiro possessed assets worth $240 billion. Nevertheless, the bank collapsed due to a combination of factors such as bad loans, violent expansion, and economic depression in Japan. When the bank crashed, the Japanese government had to take over the bank to forestall broader financial problems.
Lehman Brothers 2008
This is a world investment bank that declared bankruptcy in September 2008. Lehman Brothers’ collapse was one of the factors that contributed to the world financial crisis. This had a strong effect on the world economy. This collapse was caused by exposure to the United States subprime mortgage market.
Washington Mutual 2008
This organization was the biggest savings and loan association in the United States until it crashed in September 2008. This financial institution had a huge amount of subprime mortgages on its balance sheet. The incurred subprime mortgage caused its collapse, and this collapse was the biggest in the United States with more than $300 billion in assets.
Baring Banks 1995
This is a British investment and financial institution that crashed in 1995. Also, the crash occurred after huge losses were incurred by an employee (Nick Lesson). who has been trading without being authorized. When the bank collapsed, the news struck fear in the financial sector. The bank was bought by a Dutch bank (ING).
IndyMac Bank (2008)
Based in the United States, IndyMac deals with subprime mortgages. However, this financial institution failed in July 2008, and the collapse stands among the biggest failures in the history of the United States. The collapse saw the loss of more than $32 billion worth of assets.
BCCI (Bank of Credit and Commerce International) 1991
This is a Pakistani bank, and it crashed in 1991 after a series of investigations and malpractices into money laundering, bribery, and other forms of financial activity. The collapse of this bank is also a big one, as more than $20 billion worth of assets were lost. The CEO of the bank was charged with fraud and money laundering.
Continental Illinois National Banks and Trust 1984
This bank was located in the United States, and it collapsed in 1984 because it was exposed to the power industry. The collapse saw the loss of more than $40 million worth of assets. Continental Illinois National Bank was taken over by the FDIC, and subsequently sold to the Bank of America.
Northern Rock 2007
Northern Rock was located in the United Kingdom. The bank collapsed in 2007 because of its exposure to the subprime mortgage market. This collapse is the first to occur in more than 150 years in the United Kingdom. The United Kingdom government took it over and sold it to Virgin Money.
Royal Bank of Scotland (RBS) 2008
The Royal Bank of Scotland had witnessed an impressive growth prior to the world financial crisis in 2008. However, the bank crashed due to its exposure to the United States subprime mortgage market. The United Kingdom had to rescue the bank. The bail cost more than forty-five billion pounds sterling.
Banco Espirito Santo 2014
Banco Espirito Santos was a Portuguese bank that collapsed in 2014. It collapsed due to a series of accounting errors and losses incurred on its investments. The bank was subsequently sold to Novo Banco (another Portuguese bank).
Banca Monte dei Pashci di Siena 2017
This is an Italian bank that has been operating since the 15th century. This bank had encountered a lot of financial challenges over the years, and in 2017, the Italian government had to bail it out. Banca Monte dei Paschi di Siena’s collapse was due to a lot of bad loans and derivative trades that went wrong.
Iceland Banks (2008)
Iceland’s bank crashed during the world financial crisis in 2008. However, the bank had experienced significant growth a year before the world financial crisis. The bank had been exposed to the Icelandic property market. The government had to nationalize the bank, and the nation experienced a severe economic crisis.
The bank had taken a mature approach to the crash and didn’t seek help by socializing its losses by bailing the bank out. This would have enabled the bank executive to escape going to jail. However, a lot of the bank’s executives went to prison when the bank crashed. Should this approach be adopted, it will correct the mindset of bankers who want to take risks using other people’s funds.
