186 banks pose similar risks to Silicon Valley Bank

A recent study by economists identified 186 banks at risk. These banks are facing problems similar to the one that caused the collapse of Silicon Valley Bank. The SIVB collapsed earlier this week as the bank’s assets dwindled due to rising interest rates. This led to worried customers withdrawing their uninsured deposits.

During the Federal Reserve’s rapid rate hike campaign, economists assessed individual US banks. They assessed asset books and market value losses. Assets such as treasury bills and mortgages can lose value. This happens when new bonds offer higher rates. Economists have also analyzed bank funding percentages. They focused on funding from uninsured depositors, those whose accounts hold more than $250,000.

Their findings suggest a potential problem. If half of these uninsured depositors were to quickly withdraw funds from one of these 186 US banks, even the insured depositors could face deficiencies. This is due to insufficient assets available to all depositors. In such cases, FDIC intervention may become necessary.

It is crucial to note an important limitation in this research. The study does not take hedging strategies into account. These strategies can protect many banks against rising interest rates.

In their paper, the economists said: “Our calculations suggest that these banks are certainly at potential risk of a run, absent further government intervention or recapitalization.”

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