Banks are the first thing we consider when storing our money safely and conducting transactions. But recently, there have been a lot of economic crises due to bank failures. These failures are gaining a peak daily and causing damage to people’s trust in the banking system. It generates the need for a better alternative than banks for easy investment and secured storage.
In this scenario, Bitcoin came out as a handy alternative for people to manage their money. Find out the biggest bank failures of all time and why Bitcoin is considered their alternative in this blog.
Indeed, it was occasional news to hear about bank failures, but in recent years, there have been situations where the economy gets compromised due to the fall of large banks. Recently Silicon Valley Bank and Signature Banks failed in the span of 2 days in the year 2023. These failures indicate a situation of great crises like the one in 2007-2009 that led to the Great Recession.
During the great recession and in the year 2023, the similarity we saw is the fall of some great banks with large amounts of assets. Let’s look at some of these top bank failures to understand more.
Washington Mutual Bank is the largest bank failure in history, with a wide margin. This bank failure was reported on September 25, 2008, with an asset of around $307 billion. During the financial crisis 2008, this bank came shattering due to the crash of housing and the secondary market for mortgage-backed securities.
To make the matter worse, the collapse of Lehman Brothers came along. This incident created a panicked environment among the depositors of WaMu, and they withdrew the funds in bulk. JPMorgan Chase ended up purchasing the liabilities and institutional assets, and the bank filed for Chapter 11 bankruptcy.
After the fall of March, First republic bank failed on May 1, 2023, with an asset institution of $229.1 billion. This bank is focused on prominent merchants and has been caught on amid rising interest rates. During the pandemic, it got an enormous hit when its customers withdrew the mortgages at the lowest rates; the value of these assets fell more due to the rise of interest rates.
To build the customers’ confidence in the first republic bank, some large banks, including JPMorgan Chase, Well Fargo, Citigroup, and Bank of America, have put in an uninsured deposit of $30 billion. This calms the customers for a short time, but the bank’s first-quarter earnings have proven the worst.
First republic bank was put in receivership, and then JPMorgan Chase purchased all the deposits and assets from it, and the bank was declared bankrupt.
This bank has close ties with tech sectors, meaning most of its depositors are associated with tech firms. Further, the bank management invested in bonds when the interest rates were low. Silicon Valley bank had to sell a significant portion of its portfolio in loss to meet the obligations as its depositors fled.
It even makes efforts to raise capital, but that doesn’t work out in its favor, leading to the collapse of Silicon Valley Bank on March 10, 2023, with an asset value of $209 billion.
On March 12, 2023, the regulators closed the signature bank with an asset amount of $110.4 billion. The reason behind the downfall of the signature bank is its decision to serve in the digital currency industry. In 2021 they had invested 16% of their deposits in this industry. After that, there has been great turmoil in the industry, and outgoing deposits have gained a significant hike.
These outgoing deposits have been taking signature banks down and continued to do so in the current year. Facing this condition, the final decision came out to close the institution, leading to another high-asset bank’s failure.
IndyMac bank has been represented as the poster child for the financial crisis of 2008. It was the largest mortgage lender with an asset amount of $30 billion. They played a market game with the subprime borrowers by essentially making loans to them and then securitizing and selling the same in the secondary market.
When this instance came to light, they became restrictive and could no longer sell these loans and had to retain that. After that, holders withdrew around $1 billion within 2 weeks, worsening their liquidity position. Public reliance on this bank was lost, and a private firm bought most of its major assets, leading to its failure on July 11, 2008. However, FDIC completed the sale of IndyMac on March 19, 2009.
Banks play a significant role in the running economy, and these kinds of failures can crash the whole economy again like they did before. One must be aware of some general conditions that can lead to bank failures to prevent such future instances.
Bank accounts are accessible to bank officials and the user itself. Any official connected with that bank can access your details without notifying you, which can lead to significant downfalls or fraud in the banking system. Users can not just depend on banks’ trust for the safety of their hard-earned money.
Banking systems use various tactics and, overall, various techniques in the market they work. During high investment times, certain banks use the deposit amount to improve their business and circulate it in the secondary market without getting the approval of their customers.
If the market turns out on the bank and the deposit downflow started by the customers, then there is no backup plan to arrange large amounts, and in such cases, banks need to file for bankruptcy.
In this digital environment, most customers prefer mobile banking for their convenience. Hackers can spy through the network, which results in people losing their money in no time. Banks have not yet developed advanced security measures to protect their customers from fraud. This affects the integrity of banks and the trust of their customers.
Certain banks charge hidden fees, which irritates the customers as they don’t have access to the information regarding the money banks have deducted. Charging such a fee is considered unethical, and certainly, one doesn’t want to put their money in a place where they don’t know about the charges they are paying.
Some countries have strict laws regarding these activities, and if a bank still performs such things, then that country’s central bank has all the rights to terminate the institution.
All the financial services work on account numbers and the name of customers. This provides a screening list to the bank officials, who can accept and decline the transactions as per their choice. Some officials use such information for their profits, resulting in the loss of institutions. This biased nature of banks makes the customers lose their trust in the organization, affecting the business of banks.
Bitcoin has been in depositors’ eyes since its launch, but people were on a backseat regarding its functionality. The launch of Bitcoin was significant as it came when the great recession was at its end. This diversifies the investment portfolio among people and is considered the “Future Currency” for its tech-advanced nature.
There are certain aspects of Bitcoin that make it a better alternative to banks. Let’s put the light on this and find out more.
Any centralized authority does not control bitcoins, so there is no government involvement in its control and holdings. This currency is not law-embedded, so the government in power cannot manipulate Bitcoin values. Bitcoins solve the problem of security and are controlled by the owners only.
Bitcoin itself is a secure currency as it can only be accessed through the owner’s private key. Apart from this, various cold wallets keep these keys safe and secure. The access to Bitcoin remains to its owner unless and until they prefer to share it with others.
Unlike banks, there are multiple safe ways to store Bitcoin. Any physical space is not required to keep your currencies. This protects them from being stolen by any means.
To start using bitcoins, the barriers are minimal, and everyone can easily access it without concern about their status. This inclusive nature of Bitcoin is improving the economy by giving everyone an equal opportunity around the world.
From small householders to business people, everyone can use Bitcoin conveniently and invest their money without fearing any minimum investment. Customers can keep their currency in their control and not be interrupted by bank officials.
Bitcoin runs smart contracts in the blockchain, a set of instructions that minimize human interaction. These smart contracts are very advanced and detect fraudulent activities and corruption, which is impossible for banks.
The diversified form of Bitcoin ensures the proper use of coins and tokens, ensuring the diversification of Bitcoins and securing its adoption worldwide. During transactions, smart contracts leverage the user, and this facility is not available with banks.
There are some traditional methods of investment while working with the banks, and most of these methods are saturated to a large extent. At the same time, bitcoin provides a diversified platform where the holders can spend or invest the currency almost anywhere globally. There are no transactional charges while conducting a transfer in other countries.
Bitcoin users can hold their currencies irrespective of the market and invest them at their convenience in any Bitcoin-friendly sector.
Bitcoin is a digital age currency and is evolving with the technology. There are various new ways that are on the front foot for Bitcoin investments. It is becoming the best alternative to the banking system, and people are leaning toward it. Despite being volatile, Bitcoin is making its way through and proving itself as a currency of the future generation.
To sum up, there is no doubt that, per current scenarios, Bitcoin is the best alternative for banks and their customers. Bitcoin provides practical solutions to the situation caused by the banking system. The entire security system of Bitcoin is encouraging investors for more transactions.
Bitcoin is moving toward the better and cashless age of finance and being an excellent replacement for banks and banking systems; however, in the long run, Bitcoin has to fill in all the loopholes of banking systems and be a more stable and robust currency.
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