Lehman Brothers, the fourth largest investment bank on Wall Street, declared bankruptcy on the 15th of September 2008, becoming the largest bankruptcy in U.S. history. The investment house, which was founded in the mid-19th century, had become heavily involved in the U.S. housing bubble in the early 2000s, with its large holdings of toxic mortgage-backed securities (MBS) ultimately causing the bank's downfall. The bank had expanded rapidly following the repeal of the Glass-Steagall Act in 1999, which meant that investment banks could also engage in commercial banking activities. Lehman vertically integrated their mortgage business, buying smaller commercial enterprises that originated housing loans, which allowed the bank to expand its MBS holdings. The downfall of Lehman and the crash of '08 As the U.S. housing market began to slow down in 2006, the default rate on housing loans began to spike, triggering losses for Lehman from their MBS portfolio. Lehman's main competitor in mortgage financing, Bear Stearns, was bought by J.P. Morgan Chase in order to prevent bankruptcy in March 2008, leading investors and lenders to become increasingly concerned about the bank's financial health. As the bank relied on short-term funding on money markets in order to meet its obligations, the news of its huge losses in the third-quarter of 2008 further prevented it from funding itself on financial markets. By September, it was clear that without external assistance, the bank would fail. As its losses from credit default swaps mounted due to the deepening crash in the housing market, Lehman was forced to declare bankruptcy on September 15, as no buyer could be found to save the bank. The collapse of Lehman triggered panic in global financial markets, forcing the U.S. government to step in and bail-out the insurance giant AIG the next day on September 16. The effects of this financial crisis hit the non-financial economy hard, causing a global recession in 2009.

During the Global Financial Crisis of 2007-2008, a number of systemically important financial institutions in the United States declared bankruptcy, sought takeovers to prevent financial failure, or turned to the U.S. government for bailouts. Two of these institutions, Fannie Mae and Freddie Mac, were government-sponsored enterprises (GSEs), meaning that they were set up by the federal government in order to steer credit towards lower income homebuyers through interventions in the secondary mortgage market. While both were chartered by the government, they were also publicly traded companies, with a majority of shares owned by private investors. The fall of Fannie Mae and Freddie Mac These GSEs' business model was based on buying mortgages from their originators (banks, mortgage brokers, etc.) and then packaging groups of these mortgages together as mortgage-backed securities (MBS), before selling these on again to private investors. While this allowed the expansion of mortgage credit, meaning that many Americans were able to buy houses who would not have in other cases, this also contributed to the growing speculation in the housing market and related financial derivatives, such as MBS. The lowering of mortgage lending standards by originators in the early 2000s, as well as the need for GSEs to compete with their private sector rivals, meant that Fannie Mae and Freddie Mac became caught up in the financial mania associated with the early 2000s U.S. housing bubble. As their losses mounted due to the bursting of the bubble in 2007, both companies came under increasing financial stress, finally being brought into government conservatorship in September 2008. Fannie Mae and Freddie Mac were eventually unlisted from stock exchanges in 2010.

As of January 2025, the largest all-time bankruptcy in the United States remained Lehman Brothers. The New York-based investment bank had assets worth 691 billion U.S. dollars when it filed for bankruptcy on September 15, 2008. This event was one of the major points in the timeline of the Great Recession, as it was the first time a bank of its size had failed and had a domino effect on the global banking sector, as well as wiping almost five percent of the S&P 500 in one day. Bank failures in the U.S. In March 2023, for the first time since 2021, two banks collapsed in the United States. Both bank failures made the list of largest bankruptcies in terms of total assets lost: The failure of Silicon Valley Bank amounted to roughly 209 billion U.S. dollars worth of assets lost, while Signature Bank had approximately 110.4 billion U.S. dollars when it collapsed. These failures mark the second- and the third-largest bank failures in the U.S. since 2001. Unprofitable banks in the U.S. The collapse of Silicon Valley Bank and Signature Bank painted an alarming picture of the U.S. banking industry. In reality, however, the state of the industry was much better in 2022 than in earlier periods of economic downturns. The share of unprofitable banks, for instance, was 3.4 percent in 2022, which was an increase compared to 2021, but remained well below the share of unprofitable banks in 2020, let alone during the global financial crisis in 2008. The share of unprofitable banks in the U.S. peaked in 2009, when almost 30 percent of all FDIC-insured commercial banks and savings institutions were unprofitable.