186 banks were found to have similar risks to Silicon Valley Bank

A recent survey by economists identified 186 banks at risk. These banks are facing problems similar to those that caused the collapse of Silicon Valley Bank. SIVB went bankrupt earlier this week as the bank’s assets were reduced by rising interest rates. This led to concerned customers withdrawing their uninsured deposits.

During the Federal Reserve’s rapid rate hike campaign, economists evaluated individual US banks. They reviewed asset books and market value losses. Assets such as Treasury bills and mortgage loans may decline in value. This happens when new bonds offer higher rates. The economists also analyzed the banks’ funding rates. They focused on funding coming from uninsured depositors, people with bills in excess of $250,000.

Their findings suggest a potential problem. If half of these uninsured savers quickly withdraw money from one of these 186 U.S. banks, even insured savers could face impairment losses. This is because insufficient assets are available for all depositors. In such cases, intervention by the FDIC may become necessary.

It is crucial to note a significant limitation in this study. The study does not take hedging strategies into account. These strategies can protect numerous banks from rising interest rates.

In their paper, the economists stated, “Our calculations suggest that these banks are certainly at potential risk of a run, with no other government intervention or recapitalization.”

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