The perfect mix of losses, uninsured leverage and a larger loan portfolio, among other factors, led to the downfall of Silicon Valley Bank (SVB). The comparison of SVB’s situation with other players revealed that nearly 190 banks operating in the United States are at potential risk of panic.
While the collapse of SVB has come as a reminder of the fragility of the traditional financial system, recent analysis by economists has shown that a large number of banks are just uninsured deposit withdrawals away from a devastating collapse. He read:
“Even if only half of uninsured depositors decide to withdraw, nearly 190 banks are at potential risk of impairment for insured depositors, with potentially $300 billion of insured deposits at risk.”
Monetary policies made by central banks can have a negative impact on long-term assets such as government bonds and mortgages, which can, in turn, create losses for banks. The report explains that a bank is considered insolvent if the market value of its assets – after paying all uninsured depositors – is insufficient to repay all insured deposits.
The data in the chart above represents assets based on bank call reports in the first quarter of 2022. Banks in the upper right corner, alongside SVB (with assets of $218 billion), have the losses of ‘most serious assets and largest executable uninsured deposits to score – to market assets.
The recent rise in interest rates, which has caused the market value of US banking system assets to drop by $2 trillion, combined with a large share of uninsured deposits in some US banks, threatens their stability.
“Recent declines in the value of bank assets have significantly increased the vulnerability of the US banking system to uninsured depositors,” the study concluded.
Related: Breaking: SVB Financial Group files for Chapter 11 bankruptcy
As the federal government steps in to protect depositors at SVB and Signature Bank, President Joe Biden has assured there will be no impact on taxpayers.
However, many pointed out to Biden on Twitter This “everything you do or touch costs the taxpayer! »