Banks have a unique business model; they can still fail at it

The night the lights went out in Georgia
In theory, no bank should ever fail. Ostensibly, no business should fail. You make a product, sell it for more than it costs to produce it, and you make a profit. I know, I know, the reality is different. Most businesses actually do fail. But a bank’s business model isn’t just to make money. A bank’s business model is to make money. That’s a subtle but important difference.

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People talk often about the Federal Reserve printing money, but that gets it wrong. The Fed doesn’t print money, either literally or figuratively. The Fed gives that job to the banks. A bank’s business, ultimately, involves creating “money” in its broadest sense. Cash gets into circulation when a bank hands it out to a customer. Banks create credit when they make loans, and credit is the true lubricant of the economy. The banking license is almost literally a license to print money. It should, therefore, be an impossible thing to fail at. Banking is like the underwear-gnome business model from “South Park,” but instead of a question mark between phases one and three, phase two is “print money.” Any conservatively run bank should turn a steady profit season after season, year after year. Most in fact do.

But banks do fail. On Friday, Georgia banking regulators and the FDIC rolled up three-branch Community Bank & Trust – West Georgia, based in LaGrange, as our Ebrima Santos Sanneh reported late Friday night. It was the second failure this year, after Chicago-based Metropolitan Capital Bank & Trust failed in January. 

Community Bank had about $288 million in assets and $268 million in deposits. That’s tiny compared to the big banks, but it still should have been enough to profitably run a bank. Community Trust’s problems, it seems, as they usually do, revolved around loans. On April 14, the Fed issued a cease and desist order to Community Bank’s parent company. The complaint was that the bank had struck upon a growth strategy that involved making and buying Small Business Administration and Agriculture Department loans through nonbank partners.

That gambit in itself may not have been the problem. A January review by the Atlanta Fed found problems with “board oversight, capital, and compliance.” The bank was given 30 days to come up with a written plan to fix its problems. They didn’t even make it two weeks. I don’t know exactly what was happening inside Community Trust, but it obviously wasn’t being run conservatively. 

If you want to be a doomer, you might note that in all of 2025 only two banks failed, whereas two have already failed in only the first four months of 2026. But that’s still nothing. In the 2008 financial crisis, 25 banks failed, a number that doesn’t even include Wall Street firms such as Lehman Brothers and Bear Stearns. It probably would have been more if there weren’t guardrails in place; you know, deposit insurance and capital standards and the like. In the early years of the Great Depression, when there were few bank guardrails (the Fed existed but about half the banks in the country weren’t part of the Fed system), 9,000 banks failed.

I know businesspeople love to complain about regulators and rules, but there are reasons why they’re there. And for banks the reason is because even bankers sometimes get out ahead of their skis. Even the Medici, the most famous banking family in history, screwed up eventually. And if too many banks fail, if the money-creating mechanism breaks, the entire economy seizes up.