Why the recent US bank turmoil is a storm in a bean(counter's) cup

Pella’s analysis of the recent US bank turmoil indicates that the issue is contained to smaller banks, with high uninsured deposit ratios, and high customer concentration. Banks that satisfy all three of these factors probably comprise less than 3% of the banking system. However, a pullback in bank lending should be expected, which will be a headwind to GDP growth and could hit the commercial real estate market particularly hard.

Bank failures are common

Bank failures are common in the US. This chart illustrates the number of bank failures in the US annually from 1970 to 2020. During that fifty-year period there were only three years where a bank failure did not occur.

Source – FDIC, BankFind Suite: Bank Failures & Assistance Data

Most of these banks are tiny with 90% of the failures having less than $5Bn in assets and there have only been seven banks with more than $100Bn in assets that have failed.

Source – FDIC, Pella, US Department of Labor

Amid these failed banks, SVB, First Republic, and Signature are relatively large, which is why they have garnered so much attention. However, the key word here is ‘relatively’ and in absolute terms these banks remain minnows.

List of largest US bank failures and bailouts

Rank	Name	Year	Assets; $Bn ^
1	Bank of America *	2009	2,007
2	Citibank *	2008	1,641
3	Washington Mutual	2008	417
4	MBNA	2009	218
5	First Republic	2023	213
6	SVB Financial	2023	212
7	Countrywide	2009	161
8	Continental Illinois	1984	112
9	Signature Bank	2023	111