In the United States, there were 140 bank failures in 2009, with causes attributed to the poor economic climate and the pressure it exerted on banks. Many of these failures were very large and included high profile financial institutions, but smaller regional banks were also affected. Fundamentally, all of the bank failures in 2009 involved a dramatic fall in capital, causing banks to be unable to meet their obligations. The Federal Deposit Insurance Corporation (FDIC), which often takes failed banks into receivership and oversees proceedings when banks fail, maintains a list of troubled banks and monitors those financial institutions closely in order to be able to step in when they appear to be in financial trouble.
One of the precipitating causes of the financial crisis of the 2000s was the collapse of the real estate market. Many banks had very large mortgage loans out and started to experience capital flow problems as people and businesses defaulted on mortgage loans. This created a ripple effect, as mortgage-backed securities also began to fail, throwing investors into a panic, and the economy as a whole began to be dragged down, leading to unemployment, rising default on personal debts, and worries among members of the general public.
Many of the bank failures in 2009 were caused by widespread debt defaults. Assets controlled by banks failed and the banks could not keep up with their reserve requirements. Banks rely on a steady flow of funds in and out through loans, accounts, and other financial products. When the flow of funds began to be restricted, banks were no longer able to meet legal requirements to remain open, and the FDIC took these institutions into receivership, compensated investors, and supervised the transfer or closure of the banks.
The credit crisis was also a contributing factor. As the availability of capital tightened up, credit slowed to a trickle as well. Banks were unable to make loans to each other, a common practice used to help banks meet reserve requirements, and were unable to make investments to keep their capital high. Regional banks were hit especially hard by the credit crunch, as not all were eligible for federal assistance and many failed due to lack of support. Bank failures in 2009 were concentrated in high population states with very inflated real estate values like Florida and California, illustrating the interconnected nature of real estate and financial health in these regions.
Economists also noted that as banks failed and the economy became more uncertain, consumer and investor confidence faltered. This resulted in more bank failures in 2009 than might have been expected on the basis of the economics of the situation alone.
