10 Biggest Bank Failures in the World
We take a look back over the last few decades at some of the more notable cases in the ever-growing list of failed banks.
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Thursday 1st October 2009
The distress and chaos caused by bank failures has been a feature of the economy for centuries. The ongoing turmoil in the financial world, however, has seen a depressing surge in bank collapses around the globe (it's a a weekly occurrence in the States). In this article we take a look back over the last few decades at some of the more notable cases in the ever-growing list of failed banks.
The IndyMac Federal Bank happened to be one of the largest savings and loan associations in the US shortly before its collapse in 2008. Its primary reason for failure stemmed from its specialisation in products like Alt-A mortgages, which allowed the company to experience rapid growth at the cost of generating a "high concentration of risky assets" so that when the mortgage market failed in 2007, IndyMac was left with many a problem, leading to the seizure of its assets (around $30-32 billion) by the FDIC.
Barings had been around for over 230 years, surviving many troubling times, including two World Wars, but all it took to bring this mighty giant down was one man, Nick Leeson. Leeson managed to incur losses totalling around £827 million ($1.3 billion) via rogue trading, making unsupervised and unauthorised trades and deals on behalf of Barings. Sadly, due to poor management, supervision, outside events and his own judgement, Leeson successfully bankrupted his employer.
Primarily recognised as being one of the first internet-only banks and launched during the Dot-Com Boom of the late 90s, it specialised in retail and mortgage banking, as well as business finance. However, due to "significant operating deficiencies" such as poor underwriting, difficulties with loans and the collapse of the subprime mortgage industry, NetBank was shut down by the OTS.
Northern Rock is another famous one, due to the sheer amount of press coverage it has received in the past two years.
The failure and subsequent nationalisation of Northern Rock occurred thanks largely to the subprime mortgage failure that was happening in the US at the time. After seeking liquidity support from the Bank of England and receiving billions of pounds as a loan, stock prices fell, many of its customers queued outside branches of the bank in order to rescue their savings, disaster followed and the bank was nationalised in February 2008.
Now restructured as the Shinsei Bank, the LTCB encountered a whole host of bed debt issues following the bursting of the Japanese asset price bubble. With debts being as high as 2.4 trillion yen ($19.2 billion), their bubble had most definitely been burst and the LTCB was nationalised in 1998, only to be sold to a consortium of foreign banks who then proceeded with a restructuring.
BCCI was - at its peak - the seventh largest private bank in the world, with assets of well over $20 billion. The bank came under scrutiny from regulators, however, and in 1991 was at the centre of a huge legal battle in which lawsuits were thrown in every which direction, leading to the bank's eventual collapse. This battle would later be described as a "$20 billion dollar heist".
It was an impressive bank run to the tune of $16 billion dollars that ended this giant's career. During the subprime failure and fearing its collapse, customers withdraw billions of dollars from the bank, leading to its eventual seizure by the FDIC, all in the space of one month in 2008. The Wal-Mart, Starbucks and Costco of the banking industry was doomed to failure by the very people it was created to serve.
Based in Vienna and founded by the Rothschild family in 1855, the Creditanstalt was a very successful bank and eventually became one the largest banks in Austria-Hungary. The bank hit rocky waters during the time of the Great Depression, declaring itself bankrupt and having to be rescued by the central Bank of Austria as well as the Rothschilds, who then merged it with another bank, being rebranded as the Creditanstalt-Bankverein.
Founded as a "special bank" in order to help promote development and growth on the island of Hokkaido, the bank enjoyed many a successful year and grew steadily. Initially specialising in debt insurance and low-interest loans, the bank branched out into real estate investments only to suffer huge losses (over a trillion yen - $10 billion) as a result of Japan's bubble bursting in the 90s. The bank could no longer continue to do business and was declared bankrupt in 1997.
This German bank was declared bankrupt in 1974, but the big deal here was that the failure of this bank actually resulted in a change in legislature, specifically that covering settlement risk, which then led to the eventual formation of the CLS process. Essentially, payments in Deutsch Marks had been made to Herstatt on the very day it was due to be liquidated. These DM were to be exchanged into USD and then sent on to New York. However, before this could happen (but after the payments had been made) the bank was seized and because of the rules at the time, the banks never received their payments.
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