Failures

Another U.S. bank collapses, and experts wonder whether the failure is a canary in a coal mine or a coincidence.

This article appears in the November issue of Global Finance Magazine.

A sixth U.S. bank failure this year has reignited a familiar question on Wall Street: Is the banking system flashing a 2023-like warning?

California’s Department of Financial Protection and Innovation closed Nano Banc of Irvine, California, on Sept. 25, citing the lender’s deteriorating financial condition, and appointed the Federal Deposit Insurance Corp. as receiver. Sunwest Bank assumed approximately $605 million in Nano Banc’s deposits.

The closure occurred about a month after regulators shut Philadelphia’s Tioga-Franklin Savings Bank. Other failed institutions include Metropolitan Capital Bank & Trust (Chicago), Community Bank and Trust (LaGrange, Georgia), Kentland Federal Savings and Loan Association (Kentland, Indiana), and Small Business Bank (Lenexa, Kansas).

That brings the 2026 tally to six, the most since 2017 and one more than in 2023, when Silicon Valley Bank (SVB), Signature Bank and First Republic Bank collapsed. While most of the experts Global Finance spoke to say the current failures appear small, lingering balance-sheet vulnerabilities mean the underlying risks of 2023 haven’t fully disappeared.

No Rapid Runs Bode Well, but…

“They do share a pattern, but it isn’t the 2023 pattern,” said David Maya, global risk lead at Dublin-based management consultancy Accenture. “No deposit runs. No rate-driven bond losses. Every one of them was a slow failure — weak management, then losses, then the capital ran out.”

According to California’s DFPI, Nano Banc suffered from mismanagement, poor governance and “insider trading risks.” A similar “operational weakness” narrative followed Tioga-Franklin Savings Bank’s closure.

Maya cautioned against alarm. “All six together held about $1.4 billion in assets,” he said. “Silicon Valley Bank alone had $209 billion. This is not that.”

This year’s count is also a far cry from the 507 U.S. bank failures recorded between 2008 and 2014. Still, some industry experts are asking whether the liquidity and interest-rate shocks that toppled larger banks in 2023 are resurfacing.

Stephen Curry, founder and chairman of Endurance Advisory, said the problems exposed in 2023 have been only “partially fixed.”

“Uninsured deposits remain concentrated, and losses on held-to-maturity securities are still substantial,” he said. “To me, the biggest unresolved issue is supervisory follow-through. While the regulators did a good job identifying the problems, they still need to be consistent and timely in enforcing regulatory corrections.”

Lessons From Abroad

Europe offers a sharp contrast. The European Banking Authority said that banks in the European Union and European Economic Area remain resilient, with near-record capital ratios and solid asset quality.

Donald van Deventer, managing director of risk research and quantitative solutions at data and AI company SAS, attributes much of the gap to how mortgages are structured.

“European mortgages are much more likely to be floating rate or fixed rate for fairly short maturities before rate reset,” he said. “The 30-year U.S.-style fixed-rate mortgage is something extremely rare in the European market. So in that sense, there is structurally less interest rate risk embedded in the balance sheets of European banks.”

Most U.S. 30-year mortgages are sold to Fannie Mae and Freddie Mac rather than held by banks. Lenders absorb much of the same rate risk by buying mortgage-backed securities, which were the losses that sank SVB.

Echoes of 1990s Japan

Van Deventer sees a closer parallel in mid-1990s Japan, where he was with Kamakura Corp., which he founded. Real estate prices fell by as much as 80%.

“People in the U.S. at the time said that it could never happen to us,” he said. “Then in 2008-2010, it did.”

The danger, he said, is built into how banks are funded. Deposits can be withdrawn at any time, which he described as a put option no corporation would attach to its own bonds. When a bank’s assets are illiquid and depositors exercise that option, the bank cannot sell assets quickly enough to meet the demand for cash.

That dynamic helped sink Lehman Brothers in 2008. Its real estate-linked securities plunged, and rivals, knowing the firm had to sell, lowered their bids. In 2023, it fueled runs on Silicon Valley Bank and First Republic.

“And I worry we will see it again,” van Deventer said.

Where Maya sees isolated management failures, van Deventer sees the same macro forces at work.

“This year’s bank failures were triggered by the rebound in interest rates to higher levels and price pressure on real estate,” he added. “I have spent my career avoiding making forecasts, but the current environment is remarkably similar to the S&L crisis in the late ’80s and early ’90s. It is very similar to 2008-2010. And similar to Japan in 1996-1997.”

Anthony Noto covers corporate finance and private credit. Contact him at anoto@gfmag.com