The year 2023 has been marked by a series of bank failures, leaving many to wonder what the impact of these failures will be on the housing market and the wider economy. Bank failures have been a common occurrence throughout history, often causing ripples throughout the economy. The housing market, in particular, is vulnerable to the effects of bank failures.
The 2008 financial crisis, which saw a large number of banks fail, is still fresh in the minds of many homeowners and investors. The collapse of banks can have a significant impact on the housing market. One of the primary ways that banks influence the housing market is through their role in real estate lending.
Banks provide loans to individuals and businesses for property purchases, which fuels the housing market. When banks fail, there is often a reduction in lending, which can slow down the housing market. The impact of bank failures on the housing market can be seen in the 2008 financial crisis. Many banks failed, and there was a significant reduction in lending. This caused the housing market to crash, and many homeowners found themselves underwater on their mortgages. The resulting foreclosures caused a glut of homes on the market, further depressing prices.
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In addition to the housing market, bank failures can also have a broader impact on the economy. Banks are an essential part of the financial system, and when they fail, it can lead to a reduction in lending across the board. This can slow down business investment, which can lead to a recession. The failure of banks can also cause a loss of confidence in the financial system. When people lose faith in the banking system, they may withdraw their savings, causing a run on the bank. This can further exacerbate the bank's financial problems and lead to more failures.
Recent Bank Failures in 2023
The recent failures of banks may raise concerns about the stability of the real estate industry, particularly in terms of lending. However, it is important to note that these individual bank failures are unlikely to cause a widespread crash like the one that occurred in the 2008 financial crisis. The real estate industry has undergone significant changes and improvements in risk management and regulatory oversight since then, which have helped to mitigate the potential for large-scale collapse.
As we reflect on these events, it becomes evident that the aftermath of bank failures involves intricate financial maneuvers, such as the transfer of assets and deposits to other institutions. Here are the recent bank failures in 2023 as listed by FDIC.
On Friday, November 3, 2023, Citizens Bank in Sac City, Iowa, faced closure by the Iowa Division of Banking. The Federal Deposit Insurance Corporation (FDIC) took on the role of Receiver. The closure occurred without any advance notice to the public, leaving customers and stakeholders in a state of shock.
Iowa Trust & Savings Bank, Emmetsburg, IA, stepped in to assume all deposit accounts and a significant portion of the assets. Notably, all shares of stock were owned by the holding company, which, interestingly, was not involved in this transaction.
On Friday, July 28, 2023, Heartland Tri-State Bank faced closure initiated by the Kansas Office of the State Bank Commissioner. The FDIC was subsequently named Receiver. As with other closures, no advance notice was provided to the public.
Dream First Bank, National Association (N.A.), Syracuse, KS, took on the responsibility of assuming all deposit accounts and substantially all the assets. Similar to the Citizens Bank case, all shares of stock were owned by the holding company, which had no involvement in this transaction.
On Monday, May 1, 2023, the California Department of Financial Protection and Innovation closed First Republic Bank, based in San Francisco. The FDIC was appointed Receiver, and as expected, no advance notice was given to the public.
JPMorgan Chase Bank, National Association (N.A.), Columbus, Ohio, emerged as the acquirer, taking over all deposit accounts and substantially all the assets.
On March 12, 2023, Signature Bank in New York, NY, faced closure by the New York State Department of Financial Services, with the FDIC named as Receiver. Once again, the closure was executed without prior notice to the public.
To protect depositors, the FDIC facilitated the transfer of all deposits and substantially all assets to Signature Bridge Bank, National Association (N.A.), a full-service bank operated by the FDIC.
Further complicating matters, on March 20, 2023, the FDIC entered into a purchase and assumption agreement for substantially all deposits and certain loan portfolios of Signature Bridge Bank, N.A., by Flagstar Bank, National Association (N.A.), Hicksville, NY, a wholly owned subsidiary of New York Community Bancorp, Inc., Westbury, NY. This resulted in the placement of Signature Bridge Bank, N.A., into receivership.
Depositors of Signature Bridge Bank, N.A., not related to the digital banking business, automatically became depositors of Flagstar Bank, N.A., with continued FDIC insurance coverage up to the limit.
On Friday, March 10, 2023, Silicon Valley Bank in Santa Clara, CA, experienced closure by the California Department of Financial Protection & Innovation, with the FDIC named as Receiver. Similar to other closures, no advance notice was provided to the public.
To safeguard depositors, the FDIC orchestrated the transfer of all deposits and substantially all assets to Silicon Valley Bridge Bank, National Association (N.A.), a full-service bank operated by the FDIC.
On March 26, 2023, the FDIC entered into a purchase and assumption agreement for all deposits (excluding Cede & Co. deposits) and loans of Silicon Valley Bridge Bank, N.A., by First–Citizens Bank & Trust Company, Raleigh, NC. This transaction led to the placement of Silicon Valley Bridge Bank, N.A., into receivership.
List of Failed Banks: 2019-2023
Failed banks | Date closed |
---|---|
Citizens Bank, Sac City, IA | November 3, 2023 |
Heartland Tri-State Bank, Elkhart, KS | July 28, 2023 |
First Republic Bank, San Francisco, CA | May 1, 2023 |
Signature Bank, New York, NY | March 12, 2023 |
Silicon Valley Bank, Santa Clara, CA | March 10, 2023 |
Failed banks | Date closed |
---|---|
Almena State Bank, Almena, Kan. | 10/23/2020 |
First City Bank of Florida, Fort Walton Beach, Fla. | 10/16/2020 |
The First State Bank, Barboursville, W.Va. | 04/03/2020 |
Ericson State Bank, Ericson, Neb. | 02/14/2020 |
Failed banks | Date closed |
---|---|
City National Bank of New Jersey, Newark | 11/1/2019 |
Resolute Bank, Maumee, Ohio | 10/25/2019 |
Louisa Community Bank, Louisa, Ky. | 10/25/2019 |
The Enloe State Bank, Cooper, Texas | 05/31/2019 |
Impact of Bank Collapse on the Housing Market
The recent failures of Silicon Valley Bank, Silvergate, and Signature Bank have raised concerns about the stability of the real estate industry, particularly in terms of lending. While individual bank failures are unlikely to cause a widespread crash, they can have a significant impact on the housing market, and the wider economy.
One of the primary ways that banks influence the housing market is through their role in real estate lending. Banks provide loans to individuals and businesses for property purchases, which fuels the housing market. When banks fail, there is often a reduction in lending, which can slow down the housing market.
The collapse of banks can also have a broader impact on the economy. Banks are an essential part of the financial system, and when they fail, it can lead to a reduction in lending across the board. This can slow down business investment, which can lead to a recession. The failure of banks can also cause a loss of confidence in the financial system. When people lose faith in the banking system, they may withdraw their savings, causing a run on the bank. This can further exacerbate the bank's financial problems and lead to more failures.
The failures of Silicon Valley Bank and Silvergate were due to different reasons. Silvergate failed due to taking deposits and investing in cryptocurrencies, and SVB invested in US Treasuries with maturities that mismatched their deposits. The failures of these banks were avoidable, and regulators should have caught them. Unfortunately, many more “failures” of banks and other financial institutions are expected to occur due to rising interest rates, which will lead to more stress in the economy and on financial institutions.
Signature Bank's involvement in the cryptocurrency industry, which accounted for 15-20% of the bank's deposits, was seen as a major contributing factor to its failure. Signature Bank's collapse and Silicon Valley Bank's failure raised concerns about the stability of the banking system, which could lead to a loss of confidence in the system.
The impact of bank failures on the housing market can be seen in the 2008 financial crisis. Many banks failed, and there was a significant reduction in lending. This caused the housing market to crash, and many homeowners found themselves underwater on their mortgages. The resulting foreclosures caused a glut of homes on the market, further depressing prices. As the easy money over the last decade quickly comes to an end, things will begin “breaking” in the economy. The recent failures are just the beginning and not isolated events. They are indicative of systematic risk in the financial system that has yet to be identified.
Therefore, bank failures can have a significant impact on the housing market and the wider economy. The failures of Silicon Valley Bank, Silvergate, and Signature Bank have raised concerns about the stability of the banking system and could lead to a loss of confidence in the system. It is essential that regulators identify and address systematic risks in the financial system to avoid future bank failures and prevent the adverse effects they can have on the economy.