15 Times Banks Failed American Customers, Sparking Frustration
Many Americans put their trust in banks, depositing their hard-earned money to grow their savings. But some banks have failed their customers at various points throughout history.
These failures often stemmed from economic challenges and financial crises, such as the housing market crash in 2008. Other times, though, bank failures have come as a result of mismanagement, fraud, or inadequate regulation.
This list highlights some of the times when American banks have utterly failed their customers. Information about the banks on this list comes from government and news sources.
1: Washington Mutual Bank
The Washington Mutual collapse was the largest bank failure in U.S. history. When it went under in 2008, the bank had $307 billion in assets.
The Washington Mutual failure occurred during the 2008 financial crisis when the housing bubble burst, causing many homeowners to default on their mortgages. The bank’s shareholders lost most of their investments. JPMorgan Chase acquired Washington Mutual for $1.9 billion.
2: IndyMac
IndyMac was another bank that failed in 2008 after home prices started to decline. The bank had specialized in Alt-A mortgages, which were loans to people with good credit scores but nontraditional income streams.
When the housing market experienced a downturn and borrowers defaulted on their mortgages, IndyMac used deposits to cover the loans. Bank customers, uncertain about the security of their money, began to withdraw their deposits, accelerating IndyMac’s collapse.
3: Colonial Bank
The financial crisis led to the collapse of Alabama-based Colonial Bank in 2009. Its holding company, Colonial BancGroup, reported a $606 million loss in the second quarter of 2009 following an increase in foreclosures, particularly in Florida.
Fraudulent mortgage practices also contributed to Colonial Bank’s failure. An executive in the bank’s mortgage division pleaded guilty to conspiracy to commit fraud and was sentenced to eight years in prison.
4: Silicon Valley Bank
Silicon Valley Bank made headlines when it failed in March 2023. The bank, which catered to technology startups in Silicon Valley, California, became insolvent when customers rushed to withdraw more money than it had available.
The Federal Deposit Insurance Corporation (FDIC) insures bank customers’ deposits up to $250,000. Unfortunately, many Silicon Valley Bank customers had more money than that in the bank, meaning their deposits weren’t fully insured.
5: Signature Bank
The Silicon Valley Bank collapse preceded another bank failure in 2023. On the day Silicon Valley shuttered, Signature Bank lost 20% of its deposits within hours.
Signature Bank failed because of poor management and a dependence on uninsured deposits. The FDIC also said it had failed to review Signature Bank adequately because of staffing shortages.
6: First Republic
The downfall of Silicon Valley Bank also led First Republic to fail a few months later. The California-based bank specialized in low-rate mortgages to wealthy customers. After the collapse of Silicon Valley Bank, its customers took out over $100 billion in deposits.
The First Republic failure was the biggest banking collapse since Washington Mutual in 2008. JPMorgan Chase took over First Republic.
7: Continental Illinois
Continental Illinois never technically failed, but only because it received a substantial government bailout. The bank ignored potential credit risks when it acquired oil and gas loans from an Oklahoma bank engaging in risky underwriting. After that bank failed, Continental Illinois used unstable funding sources to cover those loans.
In May 1984, Continental Illinois lost around 30% of its funding in 10 days. The FDIC intervened to prevent widespread economic consequences throughout the banking system, leading to the idea that some banks were “too big to fail.”
8: Great Depression
When the stock market famously crashed in 1929, people flocked to banks to withdraw their money. The problem was that banks at the time did not have the cash reserves to handle these runs.
During the Great Depression, about 9,000 banks failed, a loss of about $7 billion in assets. At the time, deposit insurance didn’t exist, so many customers lost their life savings.
9: Wachovia Bank
Between 2004 and 2007, Wachovia Bank allowed over $400 billion of unmonitored money to be transferred through accounts. The money included millions of dollars in drug trafficking money for Mexican and Colombian cartels.
The scandal occurred because of the bank’s failure to monitor potential money laundering activity. Wachovia Bank eventually agreed to pay a $160 million settlement.
10: Wells Fargo
Over several years, Wells Fargo created millions of false accounts for customers without their consent. Thousands of bank employees created the fake accounts to meet the company’s sales goals.
The Justice Department investigated the scandal and found the bank had misused customers’ personal information to create the accounts. The practice also hurt some customers’ credit ratings. Wells Fargo agreed to pay $3 billion to resolve the scandal.
11: Bank of America
After the Wells Fargo scandal, the federal government accused another big bank of opening accounts without customers’ consent. Bank of America also overcharged fees and prevented customers from earning credit card points, according to the Consumer Financial Protection Bureau.
The bank’s practices led customers to pay bogus fees, and some saw negative effects on their credit ratings. The government ordered Bank of America to pay $250 million in penalties.
12: Countrywide Financial
From 2004 to 2008, Countrywide Financial allegedly engaged in discriminatory lending practices. The bank charged higher loan fees to Black and Hispanic borrowers, the Justice Department found.
In total, Countrywide Financial discriminated against over 200,000 borrowers because of their race or national origin. A $335 million settlement provided compensation for those victims.
13: Citibank
Citibank was one of several banks linked to the Enron scandal in the early 2000s. The government accused Citibank of helping Enron deceive investors about its financial condition.
Citibank eventually reached settlements related to its role in the Enron scandal. However, the bank denied wrongdoing and said it settled to prevent lengthy litigation.
14: Bank of New England
The combination of bad real estate loans, a downturn in the economy, and questionable business practices led to the demise of the Bank of New England in 1991. Three banks owned by the Bank of New England experienced major losses, leading the FDIC to pay $750 million to manage the fallout.
The Bank of New England told the FDIC it hadn’t predicted the extent of its losses in the early 1990s. It had leaned heavily on real estate loans and struggled when the market crashed.
15: Gibraltar Savings
Gibraltar Savings failed in 1989, only two years after the chief executive officer predicted continued financial success for the company. Gibraltar Financial, the bank’s parent company, lost nearly $250 million over those two years, largely due to high interest rates and a downturn in the real estate market.
Shareholders later accused the CEO of misleading them about the company’s finances. Federal regulators seized the bank’s assets in 1989.
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