A further 186 US banks well positioned for collapse, SVB analysis shows
The perfect mix of losses, unsecured leverage and a larger loan portfolio, among other factors, resulted in the collapse of Silicon Valley Bank (SVB). Comparing SVB’s situation with other players revealed that almost 190 banks operating in the US are at potential risk of running.
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 deposit withdrawals away from a devastating collapse. It said:
“Even if only half of uninsured depositors decide to withdraw, nearly 1[ads1]90 banks are at potential risk of impairment for insured depositors, with potentially $300 billion of insured deposits at risk.”
Monetary policy laid 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 the banks. The report explains that a bank is considered insolvent if the value of its assets – after paying all uninsured depositors – is not sufficient 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 largest 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 at some US banks, threatens their stability.
“Recent declines in bank asset values significantly increased the fragility 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 the depositors of SVB and Signature Bank, President Joe Biden assured that there will be no impact on tax-paying citizens.
However, many pointed out Biden on Twitter that “everything you do or touch costs the taxpayer!”