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Why US Banks Are Weaker than You Think

Finance

February 5, 2025

When we talk to people about moving some of their funds to offshore banks, it can seem a little scary for them.  

But in reality, the banks in your country may be worse off financially than some of the best offshore banks. This is the case in the US, where you’ll be surprised to learn that banks are much weaker than you might think. 

Below, we’ll explain why and explore the risks and some of the safest offshore alternatives. 

At Nomad Capitalist, we create bespoke strategies to legally reduce your tax bills, diversify and protect your assets, and maximise your freedom. You can find out more here

Are US Banks in Decline? 

The US is flooded with banks. However, there’s a common misconception that they are the benchmark for a bank’s strength in commercial banking or any other sector. 

This is probably due to the narrative that the US is the strongest country in the world. 

The United States hasn’t been the ‘strongest’ at anything for a while. It might offend some people, but the United States has not been great for decades. Unfortunately, this decline extends into the US banking sector as well. 

Banks in the United States have significantly deteriorated over time and so has the safety of your money. 

Whether it’s a lack of innovation in bank accounts, not keeping up with online banking, poor banking apps, an overly restrictive government or more, the US banking space certainly isn’t leading the charge. One option is to close your US bank account and look elsewhere. Let’s discuss the reasons why.

Can Banks Go into Failure?

Trying to understand the fundamentals of a bank takes a lot of work. We don’t think of banks as typical businesses, but the reality isn’t all that different.

Every business has a model, requires innovation and is constantly evolving. While the banking sector differs from general companies, the essence of a business, whether it is surviving or failing, still applies to them. 

Simply put, the fact that every company has the potential to fail applies to banks, too.

That’s precisely one of the reasons why US banks are weaker than you think. A bank failure is a genuine possibility, but for some reason, we don’t like to acknowledge it.

At the height of the Great Recession, US banks were the 40th safest in the world and, honestly, have yet to recover as well as you would expect. 

In 2023, the FDIC reported five global bank failures – including the collapse of First Republic Bank, Silicon Valley Bank and Signature Bank – the second, third and fourth-largest bank failures in the history of the US. That’s why we speak about legal offshore banking so frequently.

Why US Banks Aren’t Infallible 

The truth is the perception of banks, in general, is more about what looks good. No country wants its citizens to think that their banks will fail. We’ve grown to imagine banks as entities that aren’t fallible.

Even during a financial crisis, we find it hard to imagine a scenario where our banks would fail us. But here are pragmatic reasons for US banks failing that we have seen before.

Flawed Bank Analysis

1. Flawed Bank Analysis

Banks fail because of poor risk management, broader economic conditions, mismatch between assets and liabilities, fraud and inadequate supervision.

However, there should be a defined metric to evaluate a bank’s safety. Unfortunately, there isn’t a reliable one. The safety of banks is evaluated using a stress test; in other words, how they would hold up in a potentially adverse scenario.  

A combination of a short-lived surge in cash positions and a sustained attack on inflation by the Fed caused the collapse of Silicon Valley Bank. 

But according to Joseph Mason, a fellow professor of finance at Louisiana State University, at the time of the Silicon Valley collapse, the key metric used to test the health of US banks was flawed. 

He argues that the stress test model was not designed to address the interest rate hikes that premeditated the crisis. 

2. The US Government Policy

The US has already nationalised its banking industry, such that it now controls the flow and supply of capital. This has happened gradually over the past two decades.

The US government knows that a bank failure would cause a significant financial crisis due to the interconnectivity of the market. So, to avoid this, the government has created a policy of protecting the banks.

In the last financial crisis, four out of ten US banks failed or received government assistance to ensure they did not have to shut down.

When your government has to ensure something is working correctly by giving it extra support, it means something is wrong. 

Actions taken by the FED and government regulators continue to raise red flags. 

It begs the question. Why do banks need the government’s help if everything is going well?

The US Government Policy

3. Your Funds Aren’t Safe

The fundamentals of US banks are weaker than you’d imagine. Let’s take a moment and talk about the status of your money in the bank across the street.  

The Federal Deposit Insurance Corporation (FDIC) was founded in 1993. Almost all big US banks are FDIC-insured. This means that up to US$250,000 per depositor is insured. 

If something happens to your money in an FDIC-insured bank, you’re protected until you exceed that amount.

The fact that the FED has controlled capital flow shows little money left. So, what happens when one of the biggest banks in the US goes down? 

While you are entitled to up to US$250,000, the bad news is there is no way to make up for any money you’ve lost on top of that amount.

In other words, the system won’t cover the catastrophic fall of any US bank.

4. Liabilities

Banks have kept more cash on hand to defend themselves against a crisis since 2008. Only some banks have piled up collateralised loan obligations (CLOS).

However, in 2019, the Financial Stability Board estimated that the average exposure to leveraged loans and collateralised loan obligations (CLOs) for the 30 safest US banks was around 60% of capital. 

CLOs account for more than 100% of the capital of a few small banks. If the leveraged loan market collapses, their liabilities may swiftly exceed their assets.

5. Borrowers’ Default

What happens when borrowers cannot return loans to the banks? US banks no longer have the same coverage as they once did. If the number of borrowers defaulting on bank loans continues to increase, banks will have a problem.

We’re getting used to economic shocks in the US. Still, if things deteriorate quickly, experts suggest that if only half of depositors decided to withdraw, it would put 190 banks at a potential risk of impairment. 

Even though the FED has taken the responsibility to keep US banks functioning, it could become impossible to manage if the current situation continues.

6. Stocks and Buybacks

The main reason a bank would seek to buy back its shares is to return more profit to shareholders by positively influencing its stock price. 

Using a portion of its capital, a bank reduces the number of available shares and increases the value of those left. 

Despite the positive for stockholders, stock buybacks can have negative balance sheet impacts over time by reducing the net cash available.

Critics argue that by weakening their capital reserve, buybacks leave banks more fragile to economic uncertainty and more exposed to economic recession. 

This kind of financial engineering can enrich some shareholders and senior executives. But, inflating a bank’s share price while weakening the balance sheet causes them to be overvalued, potentially at greater risk.

US Bank Failures

If you’re unsure about the safety of US banking, just look at history. You don’t even have to look too far back. 

In recent years, several US banks have collapsed, which highlights the ongoing financial instability in the sector. 

Some of the most notable failures include Silicon Valley Bank, Signature Bank and First Republic Bank in 2023, among others. More recently, Republic First Bank failed in April 2024, and The First National Bank of Lindsay shut down in October 2024. Pulaski Savings Bank failed at the start of 2025.

These failures often stem from poor risk management, rising interest rates and economic downturns, forcing government intervention to mitigate broader financial crises.

The frequency of these banking collapses raises concerns about the overall resilience of US banks. 

Best Countries to Open an Offshore Bank Account 

‘Diversification’ is a significant word for those who want to protect and grow their wealth. You need to be looking for ways to manage risk, and part of that strategy may well include offshore banking. 

That’s why we’ve compiled a list of alternative countries with the safest banks.

1. Germany

German bank KfW heads Global Finance’s current list of the safest in the world. In fact, Germany has four of the top ten spots. 

In the wake of the Silicon Valley and Credit Suisse collapse, German Chancellor Olaf Scholz assured people its banking system remains safe and resilient.

He cited the higher resilience of the banking system, stricter regulation and the strength of the economy as the main factors. 

Because Germany is a sophisticated and contemporary country, account users will have 24/7 access to cutting-edge online banking instead of branch banking and ATM services. In many circumstances, you do not need to be physically present in Germany to create an account.

2. Switzerland

Switzerland- Countries with the Best Offshore Banks

Despite the collapse of Credit Suisse, the result of a series of scandals, management changes and losses, Swiss banks remain a safe bet. 

Swiss bank accounts are renowned for their privacy, stability and high-quality services. Its stable and well-regulated system is an ultra-secure haven for depositing and managing a portion of your money. 

Switzerland may not be the ultimate answer for offshore banking needs, but according to research by Global Finance Magazine, it has the world’s second safest banks – behind Germany. 

Its reputation as one of the least corrupt countries in the world and its strong economy and modern infrastructure are big advantages.

3. Hong Kong

Hong Kong- Countries with the Best Offshore Banks

Hong Kong is an excellent choice if you’re searching for a bank alternative to the United States.

Being one of the world’s most profitable and popular financial centres, Hong Kong offers its international banking clients a variety of incentives.

Hong Kong is a popular offshore banking site because of its efficient legal system, fair tax system, and well-developed telecommunications and financial infrastructure.

It’s one of the best places to establish a business since it’s a tax haven and offers outstanding financial services and global business connections. It’s also a convenient way to get access to the Chinese market.

US Bank Failures and Weaknesses: FAQs

How strong is the US banking system?

The US banking system isn’t as strong as many people perceive it to be. Five US banks failed in 2023 and there is no US bank rated in the top 40 of Global Finance magazine’s study list of the safest banks.

Are US banks failing (or at risk of failing)?

There were five US banks that failed in 2013, two in 2024 and one in 2025 so far, so it’s certainly a possibility that more could follow. 

What are the largest US banks?

JPMorgan Chase, Bank of America, Wells Fargo and Citigroup are referred to as the ‘big four banks’ in the United States.

What US banks failed in 2024?

Republic Bank and The First National Bank of Lindsay are two US banks that failed in 2024.

What are the best offshore banks for Americans?

If you’re interested in offshore banking, see the Nomad Capitalist guide on the best offshore banks

How to open an offshore bank account

If you’re looking to get a better deal or protect yourself by banking outside the United States, the Nomad Capitalist guide to opening an offshore bank account will help to clarify all the steps needed.

How safe are US banks?

US banks are not as strong as many people assume, with weaknesses in risk management, reliance on government support and financial instability. Bank failures, such as Silicon Valley Bank and First Republic Bank in 2023, are a clear sign of the issues in the US banking system. And while the FDIC insures deposits up to US$250,000, large-scale collapses could leave many depositors exposed.

Are US Banks Safe for You?

Before you open a bank account in the US, do your due diligence to find the safest option for you and spread out your funds between different banks if need be. Or, look beyond American shores for good offshore banks.

Our team can help you legally reduce taxes, diversify and protect your assets, and maximize your freedom. If you want to learn more, please feel free to get in touch here.  

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