The ultimate harbinger of the Islamic Republic's unraveling was not political dissent, but the implosion of a corrupt financial institution. The Wall Street Journal reports that Ayandeh Bank, managed by regime insiders and crushed by nearly $5 billion in toxic loans, collapsed late last year. The government's desperate attempt to cover the losses by printing money merely papered over a cavernous deficit, turning a banking failure into a symbol of national disintegration.
This collapse has accelerated an economic freefall, triggering the most severe threat to the regime in 50 years. The Wall Street Journal notes that the banking system – battered by sanctions and reliant on inflationary liquidity – is effectively insolvent. The crisis arrived at the worst possible moment: the government's legitimacy had already been shattered by the 12-day war with Israel and the US in June, which proved it could not defend its population.
With nuclear negotiations stalled and US sanctions severing access to hard currency, Tehran hit a dead end. Even the merchant class joined the protests. Adnan Mazarei, a former IMF official, told The Wall Street Journal: "This was a very well-connected bank, corrupt et cetera, which underscored that the banking system in itself is a channel for enrichment of the well-connected." He added that the failure fueled "a crescendo of the loss of legitimacy of the regime following the Israeli attack."
Ayandeh was established in 2013 by Ali Ansari, a tycoon sanctioned by the UK as a "corrupt Iranian banker and businessman" who funded the IRGC. While he blamed "decisions and policies made beyond the bank's control," economists told The Wall Street Journal the bank operated like a casino, offering sky-high interest rates to fund projects like the Iran Mall – a complex twice the size of the Pentagon featuring a hall of mirrors.
When the bank failed, it was revealed as a massive case of self-lending. A central bank official bluntly described it as "a Ponzi scheme." For Iranians, it was proof the system was rigged. "It's yet another example of the kinds of stories of corruption or unfair practices that give a lot of ordinary Iranians the impression that the system has been rigged against them, or at least rigged in the favor of a small number of elite," Esfandyar Batmanghelidj told The Wall Street Journal.
The financial contagion spread rapidly. The rial lost 84% of its value in 2025, and food inflation soared to 72%. The Wall Street Journal reports that President Masoud Pezeshkian has even proposed moving the capital to the coast to escape water and energy shortages. "The Iranian middle class has been destroyed," a Tehran artist told the outlet. "When you can no longer even try to obtain food, you have nothing left to lose."
Facing a perfect storm of sanctions, war costs, and mismanagement, the government slashed $10 billion in subsidies. The Wall Street Journal notes that the crackdown on Iraqi banks – the "lungs" of Tehran's finances – and the reliance on a "shadow fleet" for oil exports have drained the treasury. Fears of new strikes, heightened by the US raid in Caracas, drove up to $20 billion in capital flight last year.
"A bad situation that does not seem tenable," economist Djavad Salehi-Isfahani told The Wall Street Journal. The state's attempt to buy silence with a $7 subsidy failed, and lethal crackdowns have not stopped the protests. "If they could spend their way out of it they would have done that before, and they wouldn't have had to resort to this kind of violence," strategist Erik Meyersson told the outlet. "That really makes things more difficult for the regime."
