Banks on the Bankruptcy List

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Federal Reserve Building, Washington, D.C.
Federal Reserve Building, Washington, D.C. (Image: Jupiterimages/Photos.com/Getty Images)

The financial meltdown of the late 2000s was one of the biggest economic crises in history. Scores of U.S. banks collapsed, were taken over by other banks or benefited from federal government bailouts. Not just ordinary commercial banks, but many other financial institutions failed, as part of what Nobel Prize-winning economist Paul Krugman called “the shadow banking system.” The Federal Deposit Insurance Corporation, or FDIC, keeps an up-to-date list of bank failures, with three basic types of failed banks on the “bankruptcy list” from the financial crisis.

Closed

Some commercial banks failed and simply closed, including MagnetBank in Salt Lake City and First Bank of Beverly Hills in Calabasas, California. Customers with money in these banks were paid out their balances by the government through the FDIC, which insures deposits made into ordinary savings or checking accounts. One of the most famous bankruptcies was Lehman Brothers, a major investment bank that filed for Chapter 11 protection in September 2008, helping spark the financial crisis.

Bought

Many failing banks were bought out by other banks or, in some cases, bought and saved by the government -- to prevent them from collapsing -- before being sold off to other banks. Key examples include the multi-billion dollar sales of Washington Mutual and Bear Stearns to JPMorgan Chase in 2008. In other cases, the government helped broker buyouts between private banks to head off collapses, without directly writing a check from the public purse.

"Too Big to Fail"

Some of the biggest banks on the verge of collapse were considered “too big to fail” by the government and received even more direct bailouts. Among the most massive were the rescues of collapsing Bank of America and Citigroup, which each received nearly $45 billion in government aid. But even these bailouts were eclipsed by the $182 billion rescue of American International Group, or AIG, which wasn't fully repaid as of May 2011. In fact, many “failed-but-bailed-out” banks hung onto taxpayer funds at least three years after the financial crisis.

International Failures

As the financial meltdown unfolded, banks around the world also failed and received government bail outs. The Northern Rock bank nearly collapsed and was nationalized by the United Kingdom in 2008. Other bailout recipients included Lloyds TSB and the Royal Bank of Scotland. Not to be left out, Icelandic financial institutions joined the trend, including the tongue-twisting Landsbanki and Glitnir banks.

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