Franklin National Bank collapsed on forex — the $39M loss that killed a bank

Franklin National Bank was the 20th largest bank in the United States, headquartered in New York. In the early 1970s, the bank was controlled by Italian financier Michele Sindona, who had acquired a controlling stake in 1972.

The bank's collapse was triggered by massive losses in foreign exchange trading. The bank's currency traders had made unauthorized bets on currency movements, losing approximately $39 million. When the losses were discovered, they triggered a crisis of confidence that led to a bank run. The loss was compounded by the fact that the bank's management had been concealing the true extent of the forex losses from regulators.

Franklin National was declared insolvent on October 8, 1974 — at the time, the largest bank failure in US history. The bank was taken over by the European American Bank. The failure sent shockwaves through the global banking system, coming just months after the collapse of Bankhaus Herstatt in Germany, which had also failed from forex trading losses.

The Franklin National failure, together with Herstatt and Lloyds, created a crisis of confidence in the international banking system that led to the Basel Committee on Banking Supervision's first efforts to create international banking standards. The case was a direct catalyst for modern banking regulation.