The perfect combination of losses, uninsured leverage and a larger loan portfolio, among other factors, drove Silicon Valley Bank (SVB) down. Comparison of SVB’s situation with other players showed that about 190 banks operating in the United States are potentially at risk of a run.
While the collapse of the SVB was a reminder of the fragility of the traditional financial system, a recent analysis by economists has shown that a large number of banks are simply withdrawing uninsured deposits from a devastating collapse. This read:
“Even if only half of uninsured depositors choose to withdraw funds, nearly 190 banks are exposed to the potential impairment risk of insured depositors, and insured deposits could potentially be insured for $300 billion.”
Monetary policy pursued by central banks can have a negative impact on long-term assets such as government bonds and mortgages, which in turn can lead to losses for banks. The report explains that a bank is considered insolvent if the market value of its assets – after paying out all uninsured depositors – is insufficient to repay all insured deposits.
The data in the chart above represents assets based on bank call reports for Q1 2022. Banks in the upper right, along with SVBs (with $218 billion in assets), have the most severe asset losses and the largest uninsured deposits of usable market assets.
The recent hike in interest rates, which has tipped the market value of the US banking system’s assets by $2 trillion, combined with large uninsured deposits in some US banks, threatens their stability.
“The recent decline in bank asset values has significantly increased the vulnerability of the US banking system to the flight of uninsured depositors,” the study says.
Related: Breach: SVB Financial Group Files for Chapter 11 Bankruptcy
As the federal government intervenes to protect SVB and Signature Bank depositors, President Joe Biden has assured taxpayers will not be affected.
However, many pointed out to Biden on Twitter that “everything you do or touch costs the taxpayer!”