Bank Failures and Regulatory Protection

[Audio] Welcome to my presentation on bank failures and regulatory protection..

[Audio] Bank failures occur when banks cannot meet their obligations and are closed by regulators. The protection of the FDIC through insurance reduces the risk of depositor panic and helps support financial system stability. The FDIC acts a receiver, meaning it takes control of a failed bank to close out its operations, pay customers quickly, and maximize the sale of assets to cover debt..

[Audio] Metropolitan Capital Bank & Trust in Illinois was the first bank failure of 2026, with the FDIC acting as receiver. The FDIC's role is to make transfer deposits and find buyers for assets. First Independence Bank subsequently acquired the failed bank..

[Audio] Trend Analysis: 2020 had relatively few bank failures despite the economic pressures during the COVID-19 disruptions. This could be due to the aggressive monetary policies that were implemented in response to the pandemic. Comparatively, the Great Recession saw 25 failures that were triggered by the housing market collapse, subprime debt issues, and systemic credit stress. 2009 saw bank failures reaching a high of 140, deepening the effects of the financial crisis of '08 on weaker and smaller institutions. In response, the Federal Reserve implemented a Quantitative Easing (QE), an unconventional monetary policy which saw the Federal Reserve purchasing large quantities of government securities and private, mortgage-backed securities to increase liquidity in the financial system. QE helped to lower long-term interest rates, stabilize banks, restore confidence in the financial markets, and most importantly, support economic recovery by encouraging lending and investment (Greenlaw et al., 2023)..

[Audio] It is important to note that bank failures may be the consequence of adverse economic conditions or, conversely, act as a catalyst that further weakens the economy. As del Angel and colleagues (2024) demonstrate, bank failures not only reflect economic downturns but can also amplify them by triggering bankruptcies among firms that depend heavily on bank-provided credit..

[Audio] There were two bank failures in 2024. Republic First Bank had $6 billion in assets and $4 billion in deposits, while First National Bank had $107 million in assets and $97 million in deposits. These two banks highlight varied scale of these failures..

[Audio] The 1937 banking slump that followed the tightening of monetary policy during the Great Depression slowed economic growth and businesses for banks, which led to 69 failures that year..

[Audio] Preventing bank failures relies on internal risk control and regulation. Regulatory bodies set standards that banking systems should comply with, while banks must manage credit and liquidity risks internally..

[Audio] This assignment highlights how bank failures are tied to economic cycles and environment. While macroeconomic tools such as stress testing and capital buffers are used to mitigate risk, historical economic periods show how monetary and fiscal policies can influence an economy's stability. This knowledge helps in risk management and financial planning for businesses. Personally, it reinforces the importance of understanding the financial health of banking institutions and ensuring that deposits are FDIC insured..

[Audio] Please feel free to peruse the references used in this presentation. Thank you..