The 2023 banking crisis has thus far witnessed only two bank failures: SVB and Signature Bank, resulting in a total of $319 billion in lost assets. This stands in stark contrast to previous crises, which saw more significant numbers of bank collapses. As we move further into the year, the question remains: are we on the brink of a new wave of failures, or will this year defy historical patterns and maintain its low count?
Historically, bank failures have come in large batches, often occurring alongside economic downturns. Between 2007 and 2014, over 500 banks collapsed, accounting for an inflation-adjusted $960 billion in assets. Prior to that, between 1980 and 1995, more than 2,900 banks failed with a staggering $2.2 trillion in assets lost.
If no other banks fail this year, the total assets involved in bank failures would still surpass the $389 billion lost in 1989, when 534 banks collapsed. The current crisis has already set a record for the highest assets per bank failure in any crisis in history.
However, while the current situation may be alarming, it is essential to recognize that the 2023 banking crisis is nowhere near the scale of the Great Depression. Between 1921 and 1929, an average of 635 banks failed per year. This figure skyrocketed between 1930 and 1933, with 9,000 banks failing in that short period.
As we assess the 2023 banking crisis, experts are divided on whether we are facing an unprecedented anomaly or if this is simply a calm before the storm. The relatively low number of bank failures thus far could be attributed to the robust regulatory framework implemented after the 2008 financial crisis, which sought to prevent such catastrophes from reoccurring.
Nevertheless, some analysts argue that various global factors, such as mounting geopolitical tensions, inflationary pressures, and the ongoing struggle to recover from the pandemic, may lead to a sudden increase in bank failures. They assert that the current crisis may be a ticking time bomb, with the potential for a significant wave of collapses to materialize in the near future.
While it remains to be seen whether 2023 will defy history or succumb to a surge in bank failures, the ongoing uncertainty underscores the importance of maintaining vigilance and preparedness in the face of potential financial turbulence.
For those interested in gaining a deeper understanding of the history and intricacies of banking crises, the following reading list is recommended:
- “Manias, Panics, and Crashes: A History of Financial Crises” by Charles P. Kindleberger
- “The Big Short: Inside the Doomsday Machine” by Michael Lewis
- “A Monetary History of the United States, 1867-1960” by Milton Friedman and Anna Jacobson Schwartz
- “The Bankers’ New Clothes: What’s Wrong with Banking and What to Do about It” by Anat Admati and Martin Hellwig
- “This Time Is Different: Eight Centuries of Financial Folly” by Carmen M. Reinhart and Kenneth S. Rogoff
- “The House of Morgan: An American Banking Dynasty and the Rise of Modern Finance” by Ron Chernow
- “Lords of Finance: The Bankers Who Broke the World” by Liaquat Ahamed