• Pulaski Savings Bank failed due to at least $20.7 million in unrecorded deposit liabilities
• FDIC Office of Inspector General found the bank critically undercapitalized with no matching assets
• Estimated loss to the Deposit Insurance Fund was $28 million or 62% of total assets
• Repeated regulatory warnings and MOUs failed to prevent collapse
• Operational risks and poor recordkeeping were central to the failure
• FDIC suspected fraud and downgraded the bank's ratings in late 2024
• Millennium Bank acquired Pulaski after its closure in January 2025
• The failure is the only U.S. bank collapse reported so far in 2025
• Experts call for regulators to treat operational risks as seriously as credit or compliance
• The case underscores dangers of neglecting internal controls in small banks

Chicago’s Pulaski Savings Bank failed after at least $20.7 million in deposit liabilities went unrecorded in its core banking system – an oversight so severe it drained the bank’s capital, left its assets unmatched, and eventually rendered it “critically undercapitalized,” according to a damning new report by the Office of Inspector General for the Federal Deposit Insurance Corp.

The estimated loss to the FDIC’s Deposit Insurance Fund was roughly $28 million—62% of Pulaski’s $45.9 million in total assets. That figure starkly contrasts with an average loss rate of just 17% from other bank failures in the past five years.

The OIG’s Monday report called for a full-scale review of Pulaski’s operations, pointing to a systemic breakdown in recordkeeping and oversight that left the bank unable to detect or explain millions in liabilities.

The report noted that no assets corresponding to the missing deposits could be found, leading directly to the institution’s insolvency.

Pulaski’s collapse, which occurred in January 2025, remains the only U.S. bank failure this year and came after Illinois regulators declared it to be in an “unsafe and unsound condition.”

Millennium Bank of Des Plaines took over Pulaski’s assets in a transaction brokered by the FDIC and Illinois Department of Financial and Professional Regulation.

According to the FDIC, “suspected fraud” played a role in the high loss ratio. However, the OIG’s findings suggest broader failures in operational governance, compliance monitoring, and regulatory enforcement.

Patrick Haggerty, a partner at Klaros Group, called the report “pretty amazing,” emphasizing the lesson for regulators and financial institutions alike.

“Operational risks can materialize as existential threats, especially for smaller banks that don’t have a large capital base to absorb significant unexpected losses,” Haggerty wrote.

“Recordkeeping may seem mundane, but Pulaski’s failure is a fresh reminder of how important it is.”

Pulaski’s vulnerabilities had been known for years. The FDIC downgraded the bank’s composite rating in 2017 due to weak management oversight, succession failures, poor earnings, and risky exposure to interest rate fluctuations.

The bank entered into a memorandum of understanding with regulators in 2017, revised in both 2020 and 2023, committing to address these issues.

But repeated reviews between 2018 and 2024 continued to find performance and operational deficiencies.

Despite these warnings, Pulaski expanded into multifamily and commercial real estate lending starting in 2020 in a bid to boost earnings and offset interest rate risk.

The strategy failed to stabilize the bank, and by late 2024, its general ledger was so unreliable that a contractor had to be hired to update it.

In September 2023, examiners reported that Pulaski had made insufficient progress on agreed-upon reforms.

Just three months later, auditors discovered that certificates of deposit had never been entered into the core system – triggering a downgrade of the bank’s capital adequacy, asset quality, management, and liquidity ratings.

On December 19, the FDIC issued a problem bank memorandum. By December 27, the agency officially deemed Pulaski “critically undercapitalized.” The bank was closed within weeks.

Pulaski operated as a single-branch, state-chartered mutual savings bank and was a certified Community Development Financial Institution, focused on single-family residential loans and underserved markets.