The perfect mix of losses, uninsured leverage and a larger loan portfolio, among other factors, resulted in the downfall of Silicon Valley Bank (SVB). A comparison of SVB’s situation with other players revealed that nearly 190 banks operating in the United States are at potential risk of a run.
While SVB’s collapse came as a reminder of the fragility of the traditional financial system, a recent analysis by economists showed that a large number of banks are just uninsured withdrawals of deposits away from a devastating collapse. There stood:
“Even if only half of uninsured depositors decide to pull out, nearly 190 banks are at potential risk of impairment for insured depositors, with potentially $300 billion of insured deposits at risk.”
Monetary policies written down by central banks can have a negative impact on long-term assets such as government bonds and mortgages, which in turn can create losses for banks. The report explains that a bank is considered insolvent if the mark-to-market value of its assets – after paying all uninsured depositors – is insufficient to repay all insured deposits.
The data in the graph above represents the assets based on bank call reports from Q1 2022. Banks in the upper right corner, along with SVB (with assets of $218 billion), have the most severe asset losses and the largest floating uninsured deposits to mark -to – market assets.
The recent rise in interest rates, which reduced the market value of the US banking system’s assets by $2 trillion, combined with a large share of uninsured deposits in some US banks, threatens their stability.
“Recent declines in bank asset values significantly increased the vulnerability of the US banking system to unsecured 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 assured that there was no impact on taxpaying citizens.
However, many pointed out to Biden on Twitter to “Everything you do or touch costs the taxpayers!”