1972 bank failure was an early example of interest rate risk
A new report from the Federal Reserve Bank of Cleveland compares the 1972 collapse of the Bank of the Commonwealth with the spring 2023 failures of Silicon Valley Bank and First Republic.
Like SVB and First Republic, Commonwealth made investments that lost market value as interest rates increased, triggering a run on deposits.
Structural changes in banking impacted the speed of those runs and the pools of potential acquirers, according to Edward S. Prescott, senior economic and policy advisor at the Cleveland Fed.
“Nevertheless, in all three cases the response of regulators was similar, and uninsured depositors were protected,” Prescott writes.
Read the Economic Commentary: The Failure of the Bank of the Commonwealth: An Early Example of Interest Rate Risk
Federal Reserve Bank of Cleveland
The Federal Reserve Bank of Cleveland is one of 12 regional Reserve Banks that along with the Board of Governors in Washington DC comprise the Federal Reserve System. Part of the US central bank, the Cleveland Fed participates in the formulation of our nation’s monetary policy, supervises banking organizations, provides payment and other services to financial institutions and to the US Treasury, and performs many activities that support Federal Reserve operations System-wide. In addition, the Bank supports the well-being of communities across the Fourth Federal Reserve District through a wide array of research, outreach, and educational activities.
The Cleveland Fed, with branches in Cincinnati and Pittsburgh, serves an area that comprises Ohio, western Pennsylvania, eastern Kentucky, and the northern panhandle of West Virginia.
Media contact
Chuck Soder, chuck.soder@clev.frb.org, 216.672.2798
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