Why Banks Fail

Banks, as we would recognize them today as depository and lending institutions, have been around for more than 5,000 years. Shortly after the implementation of large-scale farming in ancient Mesopotamia a commodities market developed to better hedge against the uncertainties of seasonal crop yields. Also, in ancient Mesopotamia, banks formed in and around religious temples and government strongholds. The first formal system of taxation was developed by the ancient Egyptians, some years later, giving rise to government, as we would recognize it today.


It is the Christmas Holiday 2023 season and not many people are thinking of the many bank failures of March and April earlier this year. However, I plan to watch the movie It’s A Wonderful Life, as I do every Christmas Holiday season. The movie stars James Stewart and centers on a Saving and Loan Bank financial failure in a small town and is a Christmas movie classic.


In March and April 2023 the Silvergate Bank of California, Silicon Valley Bank of California, Signature Bank of New York, and First Republic Bank of California collapsed and failed for a combined total loss of around $400 billion. It resulted in three of the four largest bank failures in U.S. history. Regulators in Washington D.C. and their international banking counterparts quickly stepped in to contain the financial situation and prevent further contagion to the broader financial system. With Washington D.C. at its highest debt-level in nearly a century, I am not confident regulators can stop or prevent a true banking or financial collapse.


I am amazed that after 5,000 years of civilization with banking as an institution, and all the technological and scientific advances of the past 300 years, our leaders still have not been able to prevent, stop, or understand why bank-runs occur or why banks collapse. The simple short answer is that investors stop believing their money is safe being deposited in the bank and no longer have confidence in the stability and viability of the depository and lending institution. It is a loss of trust, at the most fundamental level, between bank managers and their respective customers and clients.


Nevertheless, there are technologies today that were not available to James Stewart’s character in It’s a Wonderful Life. I will not promise that online college degree programs can solve the 5,000 year-old problem of bank-runs and bank failures. However, online college degree programs and online certifications can provide bank managers and bank employees with the most up-to-date best banking practices, and possibly restore trust and maintain confidence with their respective clients and investors.


I hope and pray everyone enjoys this Christmas Holiday 2023 season. Try not to think too much about bank failures or financial system collapses, unless of course you are watching It’s A Wonderful Life. Merry Christmas 2023!




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