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I invite you to look at the list of failed banks provided by the FDIC: https://www.fdic.gov/resources/resolutions/bank-failures/failed-bank-list/ https://www.f

I invite you to look at the list of failed banks provided by the FDIC: https://www.fdic.gov/resources/resolutions/bank-failures/failed-bank-list/ https://www.fdic.gov/resources/resolutions/bank-failures/fai... Notice that the vast majority of these are smaller, local or regional banks.

woodruffw 4y ago
Pointing to the list of failed banks from the website of the government agency that insures them and makes customers whole doesn't convey as strong of a point as you might have intended.
- AmericanChopper 4y ago
  > makes customers whole *As long as whole is less than $250k.
  - arcticbull 4y ago
    Yes, that's the worst case - however in the real world the FDIC and the OTS (Office of Thrift Supervision) does their best to ensure nobody loses any amount of money regardless of their account balance. In the case of WaMu in 2008 for instance, the OTS took possession of the bank and sold it to JPMorgan Chase. They didn't draw on the deposit insurance fund and everyone stayed whole. [1] "According to FDIC spokeswoman LaJuan Williams-Young, 'No depositor has ever lost a penny of insured deposits since the FDIC was created in 1933.'" [2, 3] [edit] Looks like I found one case where a bank failed and a total of $500,000 in uninsured deposits (not in a single account, in total) were forfeit. [4] [1] https://en.wikipedia.org/wiki/Washington_Mutual https://en.wikipedia.org/wiki/Washington_Mutual [2] https://en.wikipedia.org/wiki/Federal_Deposit_Insurance_Corporation https://en.wikipedia.org/wiki/Federal_Deposit_Insurance_Corp... [3] https://www.magnifymoney.com/banking/deposits-bank-failures/ https://www.magnifymoney.com/banking/deposits-bank-failures/ [4] https://www.depositaccounts.com/blog/bank-failures/#p21332 https://www.depositaccounts.com/blog/bank-failures/#p21332
    - addicted 4y ago
      I guess the only valid point is that the allure of small banks may be overstated. There is a problem with large banks. It’s the same problem with large companies from any other industry. They gain oversized political power. However, it’s weird to me how much we go after the banks for being large when it’s far more regulated than nearly every other industry in the country.
    - AmericanChopper 4y ago
      > No depositor has ever lost a penny of insured deposits since the FDIC was created in 1933 This is just a truism because all insured deposits are insured, and all non-insured deposits are non—insured.
      - arcticbull 4y ago
        Yes, you're right, however, do you have a source on how much has been lost in the last 89 years? I've had a lot of trouble finding anything more than that one bank that had $30M in assets losing $500K in total one time in Texas in the last 5 years.
        NovemberWhiskey 4y ago
        The failure of IndyMac is the poster-child of the modern era - losses on uninsured deposits were certainly into the multiple hundreds of millions; it's really that case which prompted the increase of the FDIC insurance limit.
        Asparagirl 4y ago
        Yup. About 10,000 people (well, 10,000 depositors, some of which were actually companies or trusts or things like that, not all people) lost more than $270 million in total uninsured funds that were over the FDIC limits in the IndyMac collapse.
      - deleted 4y ago
        [deleted]
  - woodruffw 4y ago
    Per individual account (joint accounts are double). The FDIC is more than happy to ensure all of the accounts you'd like to open. (And as 'arcticbull mentioned: the FDIC has reliably made much larger account holders whole.)
  - dragonwriter 4y ago
    > As long as whole is less than $250k. Usually, no As an insurer, sure, $250K per account owner per ownership class. (Notably, single and joint accounts are separate ownership categories, so with proper distribution of balances, a married couple with single and joint accounts at one institution, is covered up to $1,000,000 in total. $250k each in the individual category, and $250k each in the joint category. But it also acts as a receiver of failed banks, and in that capacity can facilitate the sale of assets tied to the uninsured portion of the debts represented by account balances. Usually, this ends up with making account holders whole without limit.
    - lamontcg 4y ago
      For a single individual are savings and checking accounts considered separate accounts?
      - dragonwriter 4y ago
        > For a single individual are savings and checking accounts considered separate accounts? Insurance limits are not by account, they are by account ownership category. Checking and savings account held as single accounts are all part of the same ownership category: https://www.fdic.gov/resources/deposit-insurance/brochures/deposits-at-a-glance/ https://www.fdic.gov/resources/deposit-insurance/brochures/d...
  - pkulak 4y ago
    Folks with more than 250k know not to put any of it over the bounds of the FDIC.
    - AmericanChopper 4y ago
      $250k is only just a home down payment in a lot of cities.
      - majormajor 4y ago
        That doesn't stop you from spreading it out... while you say "only" just a down payment, it's also worth noting that a down payment is the single largest cash transaction many people will ever make. Which is all the more reason that it doesn't make sense to have a giant balance all in the same spot 99% of the time. ("A lot" of cities is also doing a lot of work in that sentence... 250k is 20% of 1.25M. That would buy you a lot of house in the vast majority of US cities.
  - Tool_of_Society 4y ago
    I wish I had +250k in my bank account....
    - leeoniya 4y ago
      did it work?
- NovemberWhiskey 4y ago
  I think it perfectly well makes the point that regional banks are much more likely to practice poor risk management and fail than larger banks. If your goal is "boring banking", having to have the FDIC come in and arrange a sale of your bank is ... not it?
  - woodruffw 4y ago
    Oh, that's a good point. I guess the most boring bank possible would probably be something like Chase. That being said, it looks like we average around 4 regional bank failures a year in the US. There are a little under 5000 banks in the US, almost all of which are regional, so that leaves a 0.08% chance that any particular one of them will fail (all things being equal, which they probably aren't).
    - vba616 4y ago
      >I guess the most boring bank possible would probably be something like Chase A bank like Chase has all sorts of fees and minimums for a simple checking account - which a normal regional bank doesn't. What's the benefit to an a average person of banking with a subsidiary of a huge Wall Street bank? They don't even want your business. The only reason they are even offering consumer services is because of out of control empire building, like how JP Morgan bought Chase Manhattan. You don't have to bank with a national brand name. You don't have to pay a monthly fee for checking. You don't have to have a monthly direct deposit. You don't have to have a $1500 minimum balance (like with Chase). And credit unions are fine of course, but banks have free checking too. I wonder if there are a lot of people who think you will get food poisoning from any hamburger not made at a McDonald's.
      - woodruffw 4y ago
        Far be it from me to defend Chase. I thought they might be a good example of a “more boring” bank in the sense that the GP meant. But I agree completely that, for many people, a small bank or credit union is a much better choice.
unclebucknasty 4y ago
Many larger banks are deemed "too big to fail" so they won't land on that list by definition.
darkerside 4y ago
Aren't there just more of them? When Bear and Lehman failed, each was a huge percentage of large banks, all at once.
- NovemberWhiskey 4y ago
  Neither Bear Stearns nor Lehman Brothers were deposit-taking banks.
mensetmanusman 4y ago
Dodd Frank destroyed a lot of small banks and helped the big get bigger.
concinds 4y ago
This is a complete misunderstanding of the problem. I invite you to read Taleb (I'm not trying to sound like a fanboy; but his ideas are literally the utterly common-sense conclusions you'll reach if you study complexity science as applied to the financial system; i.e. they are objectively and necessarily true). I'll try to present a very simplified but rigorous case: 1. There's commercial banks (that take consumer/corporate deposit & give out loans), and investment banks that arbitrage the markets. If you allow banks to fulfill both commercial and investment roles, consumer deposits are at risk from bad investment decisions. Note that Glass–Steagall is still repealed, and banks are still allowed today to put your money at risk. 2. Many investment banks used mathematically-flawed risk models, that underestimate fat-tail risk, and therefore lead to inevitable collapse. Read Jim Rickards's testimony to the House of Representatives on this; he was LTCM's general counsel, and LTCM (a who's who of finance PhD's and Nobel Prize winners) blew up due to overconfidence in these flawed models (https://moam.info/house-testimony-rickards-committee-on-science-space-and-_59fed7e11723dd95f51cffbb.html https://moam.info/house-testimony-rickards-committee-on-scie...). 3. The problem here is systemic risk: banks only get rescued because they're systemically important. "Systemic-ness" is mainly a function of interconnectedness of markets, i.e. systemic banks cannot fail without destroying the markets and economies. Hence banks have an incentive to become systemically important, so they'll get bailed out if they make mistakes. Risk of catastrophic system failure is incentivized. 4. Small banks failing is normal. FDIC insures deposits to a certain amount; no Average Joe gets wiped out, bank investors do. The key point (covered in Taleb's Antifragile book) is that individual survival (agent) and ecosystem survival (system) are often at odds. Animal evolution requires death, since that's the filtering process; if everyone survived, no natural selection occurs, no evolution, and pathological mutations would eventually accumulate and wipe the species out. A healthy banking industry is one in which banks fail regularly, without impacting consumers (thanks to FDIC), and where bankers who worked at those banks get wiped out financially too, and don't just walk away with bonuses. Then, they'd have an incentives to stop using known-defective quant risk models. Contrary to popular opinion skin in the game isn't about incentives but about filtering (if you fail at the game, you personally suffer the consequences and cannot continue playing). Many problems in the world stem from misunderstandings of either complex systems theory (an actual scientific discipline that should be taught in high school), math (mostly dimensionality and fat-tailedness) and probability theory. Without a basic understanding of these, people simply don't have the tools to understand or discuss much of the modern world. The consequences can be seen in systemic financial failures; in ineffective pandemic responses; and in much of social science. See for example: https://arxiv.org/pdf/2007.16096.pdf https://arxiv.org/pdf/2007.16096.pdf https://arxiv.org/pdf/1505.04722.pdf https://arxiv.org/pdf/1505.04722.pdf
himinlomax 4y ago
> Notice that the vast majority of these are smaller, local or regional banks. Well, there's a lot more of them than there are big ones, so I'm not sure that says a lot.

woodruffw 4y ago

Pointing to the list of failed banks from the website of the government agency that insures them and makes customers whole doesn't convey as strong of a point as you might have intended.

AmericanChopper 4y ago
> makes customers whole *As long as whole is less than $250k.
- arcticbull 4y ago
  Yes, that's the worst case - however in the real world the FDIC and the OTS (Office of Thrift Supervision) does their best to ensure nobody loses any amount of money regardless of their account balance. In the case of WaMu in 2008 for instance, the OTS took possession of the bank and sold it to JPMorgan Chase. They didn't draw on the deposit insurance fund and everyone stayed whole. [1] "According to FDIC spokeswoman LaJuan Williams-Young, 'No depositor has ever lost a penny of insured deposits since the FDIC was created in 1933.'" [2, 3] [edit] Looks like I found one case where a bank failed and a total of $500,000 in uninsured deposits (not in a single account, in total) were forfeit. [4] [1] https://en.wikipedia.org/wiki/Washington_Mutual https://en.wikipedia.org/wiki/Washington_Mutual [2] https://en.wikipedia.org/wiki/Federal_Deposit_Insurance_Corporation https://en.wikipedia.org/wiki/Federal_Deposit_Insurance_Corp... [3] https://www.magnifymoney.com/banking/deposits-bank-failures/ https://www.magnifymoney.com/banking/deposits-bank-failures/ [4] https://www.depositaccounts.com/blog/bank-failures/#p21332 https://www.depositaccounts.com/blog/bank-failures/#p21332
  - addicted 4y ago
    I guess the only valid point is that the allure of small banks may be overstated. There is a problem with large banks. It’s the same problem with large companies from any other industry. They gain oversized political power. However, it’s weird to me how much we go after the banks for being large when it’s far more regulated than nearly every other industry in the country.
  - AmericanChopper 4y ago
    > No depositor has ever lost a penny of insured deposits since the FDIC was created in 1933 This is just a truism because all insured deposits are insured, and all non-insured deposits are non—insured.
    - arcticbull 4y ago
      Yes, you're right, however, do you have a source on how much has been lost in the last 89 years? I've had a lot of trouble finding anything more than that one bank that had $30M in assets losing $500K in total one time in Texas in the last 5 years.
      - NovemberWhiskey 4y ago
        The failure of IndyMac is the poster-child of the modern era - losses on uninsured deposits were certainly into the multiple hundreds of millions; it's really that case which prompted the increase of the FDIC insurance limit.
        Asparagirl 4y ago
        Yup. About 10,000 people (well, 10,000 depositors, some of which were actually companies or trusts or things like that, not all people) lost more than $270 million in total uninsured funds that were over the FDIC limits in the IndyMac collapse.
    - deleted 4y ago
      [deleted]
- woodruffw 4y ago
  Per individual account (joint accounts are double). The FDIC is more than happy to ensure all of the accounts you'd like to open. (And as 'arcticbull mentioned: the FDIC has reliably made much larger account holders whole.)
- dragonwriter 4y ago
  > As long as whole is less than $250k. Usually, no As an insurer, sure, $250K per account owner per ownership class. (Notably, single and joint accounts are separate ownership categories, so with proper distribution of balances, a married couple with single and joint accounts at one institution, is covered up to $1,000,000 in total. $250k each in the individual category, and $250k each in the joint category. But it also acts as a receiver of failed banks, and in that capacity can facilitate the sale of assets tied to the uninsured portion of the debts represented by account balances. Usually, this ends up with making account holders whole without limit.
  - lamontcg 4y ago
    For a single individual are savings and checking accounts considered separate accounts?
    - dragonwriter 4y ago
      > For a single individual are savings and checking accounts considered separate accounts? Insurance limits are not by account, they are by account ownership category. Checking and savings account held as single accounts are all part of the same ownership category: https://www.fdic.gov/resources/deposit-insurance/brochures/deposits-at-a-glance/ https://www.fdic.gov/resources/deposit-insurance/brochures/d...
- pkulak 4y ago
  Folks with more than 250k know not to put any of it over the bounds of the FDIC.
  - AmericanChopper 4y ago
    $250k is only just a home down payment in a lot of cities.
    - majormajor 4y ago
      That doesn't stop you from spreading it out... while you say "only" just a down payment, it's also worth noting that a down payment is the single largest cash transaction many people will ever make. Which is all the more reason that it doesn't make sense to have a giant balance all in the same spot 99% of the time. ("A lot" of cities is also doing a lot of work in that sentence... 250k is 20% of 1.25M. That would buy you a lot of house in the vast majority of US cities.
- Tool_of_Society 4y ago
  I wish I had +250k in my bank account....
  - leeoniya 4y ago
    did it work?
NovemberWhiskey 4y ago
I think it perfectly well makes the point that regional banks are much more likely to practice poor risk management and fail than larger banks. If your goal is "boring banking", having to have the FDIC come in and arrange a sale of your bank is ... not it?
- woodruffw 4y ago
  Oh, that's a good point. I guess the most boring bank possible would probably be something like Chase. That being said, it looks like we average around 4 regional bank failures a year in the US. There are a little under 5000 banks in the US, almost all of which are regional, so that leaves a 0.08% chance that any particular one of them will fail (all things being equal, which they probably aren't).
  - vba616 4y ago
    >I guess the most boring bank possible would probably be something like Chase A bank like Chase has all sorts of fees and minimums for a simple checking account - which a normal regional bank doesn't. What's the benefit to an a average person of banking with a subsidiary of a huge Wall Street bank? They don't even want your business. The only reason they are even offering consumer services is because of out of control empire building, like how JP Morgan bought Chase Manhattan. You don't have to bank with a national brand name. You don't have to pay a monthly fee for checking. You don't have to have a monthly direct deposit. You don't have to have a $1500 minimum balance (like with Chase). And credit unions are fine of course, but banks have free checking too. I wonder if there are a lot of people who think you will get food poisoning from any hamburger not made at a McDonald's.
    - woodruffw 4y ago
      Far be it from me to defend Chase. I thought they might be a good example of a “more boring” bank in the sense that the GP meant. But I agree completely that, for many people, a small bank or credit union is a much better choice.

unclebucknasty 4y ago

Many larger banks are deemed "too big to fail" so they won't land on that list by definition.

darkerside 4y ago

Aren't there just more of them? When Bear and Lehman failed, each was a huge percentage of large banks, all at once.

NovemberWhiskey 4y ago
Neither Bear Stearns nor Lehman Brothers were deposit-taking banks.

mensetmanusman 4y ago

Dodd Frank destroyed a lot of small banks and helped the big get bigger.

concinds 4y ago

This is a complete misunderstanding of the problem. I invite you to read Taleb (I'm not trying to sound like a fanboy; but his ideas are literally the utterly common-sense conclusions you'll reach if you study complexity science as applied to the financial system; i.e. they are objectively and necessarily true). I'll try to present a very simplified but rigorous case: 1. There's commercial banks (that take consumer/corporate deposit & give out loans), and investment banks that arbitrage the markets. If you allow banks to fulfill both commercial and investment roles, consumer deposits are at risk from bad investment decisions. Note that Glass–Steagall is still repealed, and banks are still allowed today to put your money at risk. 2. Many investment banks used mathematically-flawed risk models, that underestimate fat-tail risk, and therefore lead to inevitable collapse. Read Jim Rickards's testimony to the House of Representatives on this; he was LTCM's general counsel, and LTCM (a who's who of finance PhD's and Nobel Prize winners) blew up due to overconfidence in these flawed models (https://moam.info/house-testimony-rickards-committee-on-science-space-and-_59fed7e11723dd95f51cffbb.html https://moam.info/house-testimony-rickards-committee-on-scie...). 3. The problem here is systemic risk: banks only get rescued because they're systemically important. "Systemic-ness" is mainly a function of interconnectedness of markets, i.e. systemic banks cannot fail without destroying the markets and economies. Hence banks have an incentive to become systemically important, so they'll get bailed out if they make mistakes. Risk of catastrophic system failure is incentivized. 4. Small banks failing is normal. FDIC insures deposits to a certain amount; no Average Joe gets wiped out, bank investors do. The key point (covered in Taleb's Antifragile book) is that individual survival (agent) and ecosystem survival (system) are often at odds. Animal evolution requires death, since that's the filtering process; if everyone survived, no natural selection occurs, no evolution, and pathological mutations would eventually accumulate and wipe the species out. A healthy banking industry is one in which banks fail regularly, without impacting consumers (thanks to FDIC), and where bankers who worked at those banks get wiped out financially too, and don't just walk away with bonuses. Then, they'd have an incentives to stop using known-defective quant risk models. Contrary to popular opinion skin in the game isn't about incentives but about filtering (if you fail at the game, you personally suffer the consequences and cannot continue playing). Many problems in the world stem from misunderstandings of either complex systems theory (an actual scientific discipline that should be taught in high school), math (mostly dimensionality and fat-tailedness) and probability theory. Without a basic understanding of these, people simply don't have the tools to understand or discuss much of the modern world. The consequences can be seen in systemic financial failures; in ineffective pandemic responses; and in much of social science. See for example: https://arxiv.org/pdf/2007.16096.pdf https://arxiv.org/pdf/2007.16096.pdf https://arxiv.org/pdf/1505.04722.pdf https://arxiv.org/pdf/1505.04722.pdf

himinlomax 4y ago

> Notice that the vast majority of these are smaller, local or regional banks. Well, there's a lot more of them than there are big ones, so I'm not sure that says a lot.