FDIC taking more piecemeal approach to bank failures

• Key insight: The Federal Deposit Insurance Corp. looks to be more open to partial sales of bank assets to reap more cost-effective resolutions, which could reduce overall losses in the long term.
• Supporting data: While there does not seem to be a common thread between banks that have failed this year, the move toward partial bank sales could lower resolution costs in the long term. 

Bank failures have ticked upward in 2026 after two years of relative calm. 

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But while those banks seem to have failed for their own reasons, the way the Federal Deposit Insurance Corp. has gone about resolving those failed bank failures suggests a shift in approach that some experts say may make resolutions less expensive in the long term. 

Michael Ohlrogge, a professor at New York University Law School, said the FDIC historically sold failed banks as a whole, warts and all, to the highest bidder. But over the last decade or so, Ohlrogge said, the FDIC has preferred to sell failed banks’ assets in chunks — sometimes called piecemeal sales. And that change is a good thing, he said, because it may ultimately limit losses to the Deposit Insurance Fund.

“It seems, for a variety of factors that I can guess at but not 100% pin down, for a long period post-2008 and extending well past the crisis period, the FDIC got into this habit of just resolving essentially every single bank it possibly could with a whole-bank bid,” Ohlrogge said. “So it’s relatively striking that we’re seeing this increase in the number of resolutions via anything other than the whole bank … more all-deposit, partial-asset resolutions, more insured-deposit purchase-and-assumption resolutions at a much higher rate.”

There have been six bank failures in 2026, up from two in 2025 and two in 2024. The failure of the $736 million-of-assets Nano Banc in September marked the sixth failure this year, a notable pickup in the pace of failures from recent years. Still, according to the FDIC, the overall number of distressed “problem” banks remains well within the FDIC’s “normal range,” as of the agency’s most recent quarterly report. Only two banks failed in both 2025 and 2024. The FDIC declined to comment for this story.

Ohlrogge says his research shows that as the agency increasingly relied on whole-bank sales in the wake of the financial crisis, those resolutions tended to be more expensive for the agency, which eats into the FDIC’s Deposit Insurance Fund. 

“Going back to the ’90s and the pre-2008 period, the FDIC had gotten actually quite good, at least by modern standards, at efficiently resolving banks,” Ohlrogge said. “They had an average cost of resolving a failed bank of something like 10% of the failed bank’s assets. One of the things that the FDIC had done that seemed to work pretty well is, they got really good at finding smart ways of distributing off of failed banks’ assets. They’d break them up into pieces.”

At that time, banks could bid on certain or other loan portfolios that might compliment their existing businesses, while less desirable assets like nonperforming loans would have been sold to specialized investors. That division of the bank’s assets promoted efficient sales, Ohlrogge said, but after the 2008 financial crisis the agency began selling banks whole, sometimes discouraging bidders from submitting partial bids. 

“That was accompanied by this huge jump in costs, nearly doubling the FDIC’s cost, even if you look outside of the 2008 crisis,” he said, adding that the reasons for the shift toward whole-bank sales may have been “lack of staff capacity to handle sort of a more complex auction process of divvying up a failed bank’s assets, or just lack of experience handling anything other than a whole-bank sale … or wanting to avoid imposing losses on uninsured depositors, not wanting to take the blame for it.”

Ohlrogge says the dozen failures since the 2023 regional banking crisis seem to suggest a greater willingness by the FDIC to sell banks in pieces again, though the sample size is small.

“We’re seeing fewer whole-bank sale resolutions, at least some situations where they’re turning down a whole-bank sale in favor of other resolutions, and a little bit higher of an uptick in uninsured depositor losses,” he said. 

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Whether that piecemeal approach reflects a deliberate change in policy or a twist of fate is unclear. Several of the most recent bank failures have been attributable to fraud or self-dealing — circumstances that tend to result in bigger hits to the Deposit Insurance Fund but also tend not to attract whole-bank buyers. Paul Davis, founder of Bank Slate Consulting, noted in an interview that some of the failures this year have cost the insurance fund roughly a third of the failed bank’s assets, suggesting particularly hairy resolutions. 

“These are very small institutions, and where causes are known, they tend to be bank-specific: a concentrated bad loan, weak management, and, in at least one case, what the OCC described as unsafe and unsound practices,” he argued. “[High loss rates are] typical when failures involve fraud or insider abuse, losses concentrated in a few big loans, or banks whose capital was already deeply negative at closure.

“Very small banks have scant franchise value, so bidders don’t pay much of a premium,” he added. 

John Popeo, a former FDIC bank-resolution attorney during the financial crisis and principal at the Gallatin Group, says a smooth reopening doesn’t necessarily mean a low-cost failure. 

“The question is, on an individual bank basis, how much of the value was already lost before the FDIC stepped in?” he posited. “Then there’s a residual question: What are the buyers willing to pay for the assets and liabilities that remain?” 

Popeo pointed out that the FDIC estimated the failure of Pulaski Savings Bank, the first failure of 2025, cost the fund 62% of the firm’s assets; the failure of $63 million-of-assets Santa Anna National in June of last year was expected to cost $23.7 million. 

Popeo says while he has noticed “notable increase in chatter about bank failures,” the ones that have emerged in recent months are more attributable to broader economic stress than any specific risk. Liquidity constraints and credit deterioration are especially hard for small firms, which are less aptly positioned to weather economic stress. 

“A rising 10-year yield is not helping anyone,” he said. “I think smaller institutions are feeling the weight of this more than large institutions, systemically important institutions or GSEs. They’re much better situated comparatively.”

Going forward, Davis said he is watching commercial real estate concentration on bank balance sheets, as well as unrealized losses on securities, which triggered the 2023 failures. He is also keeping an eye on banks’ reliance on brokered deposits, Federal Home Loan bank loans and rising deposit costs. 

“Going forward,” he said. “I’d watch revisions to the FDIC’s cost estimates as retained assets are sold, the material loss reviews, and the FDIC’s next [quarterly banking profile].”