Skip to main content Accessibility help
  • Print publication year: 2016
  • Online publication date: February 2016

13 - The roles of the FDIC, the Treasury and the Fed in the crisis

from Part IV - The TARP program and the bailing out (and bailing in) of US banks


The US story

During the Great Depression between 1929 and 1933, 9,759 US banks failed, leaving 16,096 surviving banks. In the drawn-out “third-world debt” and savings and loan crisis in the United States during the 1980s, 2,356 banks went belly-up, leaving 12,347 banks by 1990. In the recent Great Recession 2008–11, “only” 414 insured banks went bankrupt. Even in 2012 after the acute phase of the crisis, when another 51 banks failed, most of them were small and only three had total assets at around 1 billion dollars, leaving 6,096 banks as at the end of 2012. In 2013, another 25 banks failed but only one had assets above 1 billion dollars.

From these data one could draw the (correct) conclusion that American banking has become more concentrated, the number falling mainly through mergers but also by liquidations of failed banks (see below). In 1995, the six largest banks or investment banks (Bank of America, JPMorgan Chase, Citigroup, Wells Fargo, Goldman Sachs and Morgan Stanley) held assets corresponding to just below 20 percent of GDP; less than 20 years later at the end of 2012, the same six banks had assets corresponding to 60 percent of GDP. The six also accounted for 67 percent of all banking assets in the United States, placing the US among the most concentrated banking sectors in comparison with Europe (see Figure 10).

The declining number of failed banks could also lead to the (incorrect) conclusion that financial crises have become milder. Even in the worst year of the Depression, 1933, when 4,004 banks failed, their combined deposits corresponded “only” to 6 percent of GDP. In the 1980s, no year's failure exceeded 2 percent of GDP measured by deposits/GDP. In the recent crisis, 353 of the 414 failed banks in 2008–11 were small, with assets of less than 1 billion dollars. Some, however, were large. The actual 2008 figure for deposits in failed banks was 3 percent of GDP, but adding the three major banks which survived solely due to government intervention (Wachovia, Citigroup and Bank of America), the figure would have been a whopping 16 percent of GDP, had these banks also been allowed to fail.