186 US Banks Face Similar Risks As Collapsed Silicon Valley Bank
A recent study conducted by economists has identified 186 banks in the United States that may be at risk of collapse due to issues similar to those that caused the recent collapse of Silicon Valley Bank (SVB). According to reports, SVB collapsed earlier this week after customers withdrew their uninsured deposits, causing the bank’s assets to diminish due to increasing interest rates.
JUST IN: 186 banks found to have similar vulnerabilities as Silicon Valley Bank, WSJ reports.
— Watcher.Guru (@WatcherGuru) March 17, 2023
Asset Books and Funding Percentages
The study by economists focused on evaluating individual U.S. banks during the Federal Reserve’s swift rate-hike campaign. They assessed the asset books and market value losses of each bank, including Treasury notes and mortgage loans that could decrease in value if new bonds offer higher rates. The economists also analyzed the banks’ funding percentages, with a particular focus on funding derived from uninsured depositors holding accounts with over $250,000.
The study found that if half of these uninsured depositors were to withdraw funds rapidly from any of these 186 banks, even insured depositors might face impairments due to insufficient assets available for all depositors. In such cases, intervention from the Federal Deposit Insurance Corporation (FDIC) could become necessary.
However, it is important to note that the study has a significant limitation in that it does not consider hedging strategies that may safeguard numerous banks against rising interest rates.
Depositor Impairments Risks
The economists stated in their paper that “Our calculations suggest these banks are certainly at a potential risk of a run, absent other government intervention or recapitalization.”
This report raises concerns about the stability of the banking industry in the United States and the potential risks to depositors, especially those with uninsured accounts. It remains to be seen how the government and other stakeholders will respond to these findings and what measures will be taken to address the potential risks to the banking system.