The Shocking U.S. Banks Most Likely to Fail in the Next Recession

We are all taught that when you deposit money in a bank, it is safe. But what if the bank you trust is quietly sitting on dangers that could make it one of the banks most likely to fail in the next downturn? A recession is not just a distant possibility — it’s a real risk. J.P. Morgan Chase & Co. currently estimates a roughly 40 % chance the U.S. economy will enter a recession by end of 2025. (JPMorgan Chase)

Your bank might say it’s fine. But beneath the surface are metrics and warning flags that could signal trouble ahead. In this post, we’ll unpack:

• Why some banks are riskier than others
• What past failures reveal
• Key metrics to watch
• Which types of banks are most likely to fail in the next recession
• Strategies you can use to protect your savings

If you bank in the U.S., this is something you’ll want to take seriously.

Understanding “banks most likely to fail” & what failure actually means

Before we go further, let’s clarify what we mean by “failure” in this context:

• A bank failure typically means the Federal Deposit Insurance Corporation (FDIC) or other regulator seizes the bank because it can’t meet obligations to depositors or other creditors.
• The bank either is liquidated or sold to a stronger institution.
• It doesn’t mean every bank under pressure will fail, but risk is significantly elevated.

For you as a depositor, even if your bank doesn’t fail, a bank in distress can mean higher costs, reduced services, unexpected policy changes, or hidden risk.

When it comes to a recession, these risk factors get amplified — loan defaults rise, property values fall, funding becomes scarce, and deposit runs become more likely.

Key warning signs that a bank may be at risk

So what makes a bank a good candidate for failure in a downturn? Based on research and past collapses, here are the major red flags:

1. High ratio of uninsured deposits

If a bank has a large share of deposits above the $250,000 FDIC insured limit, it’s more vulnerable. Depositors with large sums may pull their money out at the first sign of trouble.
For example:

• The Bank of New York Mellon reportedly had a 100 % ratio of uninsured deposits to total deposits. (Florida Atlantic University)
• Many banks shown to be at elevated risk because more than 50 % of deposits are uninsured. (business.fau.edu)

2. Large exposure to commercial real estate or long-term securities

Banks that poured into long-term bonds or commercial real estate are exposed when interest rates rise or property values drop.
We saw this with Silicon Valley Bank (SVB) in 2023, where large unrealised losses in securities combined with a deposit run.

3. Weak capital, thin liquidity buffers

Even if things look stable now, thin buffers mean less resilience in a downturn. Some recent commentary identifies low capital, high uninsured-deposit leverage, and weak asset-value cushions as defining fragile banks. (SIEPR)

4. Smaller/regional banks with concentrated risk

The biggest U.S. banks passed the recent stress tests by the Federal Reserve Board (Fed) and are considered resilient.
But regional and niche banks often lack the diversification and funding advantages of the large ones — making them more vulnerable.

Banks most likely to fail in the next recession: What the data suggests

Because specific banks may not be publicly tagged for failure risk, let’s look at broad indicators and highlight types of banks with elevated risk.

From the data:

• Many banks reported uninsured deposit ratios exceeding 50 %. (business.fau.edu)
• Scholars identify high uninsured-deposit leverage as a primary fragility factor. (SIEPR)
• Recent bank failures (e.g., SVB, Signature Bank) showed exactly this pattern: > 85 % uninsured deposits, specialized clientele, and weak diversification. (TIME)

Examples to illustrate

• Signature Bank: ~89 % of its deposits were uninsured at failure.
• SVB: ~85 %+ of deposits uninsured; exposed by bond losses and deposit flight.
• The data suggests banks with similar profiles today may be at elevated risk if a recession hits.

Why a recession will magnify bank failure risk

The context matters. Here’s why a downturn will intensify the pressure on vulnerable banks:

• Loan defaults increase: When borrowers struggle, banks incur losses on loans and may see provisions spike.
• Funding becomes tougher: Depositors may move funds to safer banks; wholesale funding can dry up.
• Asset values drop: Commercial real estate and long-term securities may underperform or lose value.
• Confidence weakens: Banking relies heavily on trust—one failure can spark contagion, especially among banks with weak risk profiles.
• Interest-rate risk and liquidity mismatch: Banks that funded short and invested long can suffer when rates rise (value of assets falls) and depositors withdraw.

Given these dynamics and the fact that the probability of a recession is non-trivial, banks with weak fundamentals face dramatically increased odds of failure.

How to know if your bank is at risk

You may not want to go deep into financial statements, but you can check for warning signs. Here’s how:

• Check if your bank is FDIC-insured.
• Ask: what percentage of deposits are above $250,000 (i.e., uninsured)? A high ratio is a red flag.
• Research whether the bank is small, regional, and heavily concentrated in a specific region or industry.
• See whether the bank has large exposure to commercial real estate or long-term fixed-income assets (these raise risk when interest rates go up or property markets decline).
• Look for news of credit-rating downgrades, big deposit outflows or large branch closures.
• Consider the bank’s reputation: are they investing in conservative assets, or chasing risk?

If you find red flags, you might treat your deposits more cautiously.

What you can do to protect your money?

Even if your bank is stable now, taking precautionary steps is wise. Here are actions you can take:

1. Stay within FDIC insurance limits: The FDIC insures up to $250,000 per depositor, per insured bank, per account category.
2. Diversify across banks: If you have more than the insured limit, spread your deposits among multiple banks to reduce risk.
3. Understand your bank’s risk profile: Even if you don’t invest, knowing the bank’s exposure helps.
4. Use safe deposit products: Money market funds, Treasury bills, and insured CDs can reduce bank exposure if you’re holding large balances.
5. Monitor for changes: If your bank reduces its branch footprint, changes its lending focus, or is frequently in the news for trouble — pay attention.
6. Have an exit or buffer plan: If you rely on a bank for business or critical funds, have alternatives ready in case the bank becomes unstable.

By treating your bank relationship like any other significant financial exposure, you protect yourself proactively.

Large banks vs regional banks: Who’s safer?

Large banks have passed recent stress tests and have deeper buffers. Regional banks tend to be more exposed. Here’s a quick comparison:

The recent stress tests show large banks remain resilient: the Fed found even under a severe scenario they would absorb large losses and remain solvent.

That doesn’t mean large banks are risk-free — but statistically, if you compare “banks most likely to fail,” the regional/niche ones are higher on the list.

Is your bank safe? It might be—but “safe” doesn’t mean immune to economic stress. The next recession could test banks in ways that expose hidden vulnerabilities: heavy uninsured deposit ratios, concentrated exposures, thin liquidity, and regional dependence.

By understanding what makes a bank one of the “banks most likely to fail”, you empower yourself. You can monitor risk, diversify deposits, and choose wisely. Even if no bank fails tomorrow, being prepared means you have peace of mind.

Remember: financial safety isn’t just about what bank you choose—it’s about how you assess and manage the relationship. Keep an eye on your bank’s risk profile, make smart moves now, and when the next downturn hits, you’ll be ready.

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