The perfect mix of losses, uninsured leverage and a larger loan portfolio, among other things, resulted in the fall of Silicon Valley Bank (SVB). A comparison of SVB’s situation with that of other players showed that nearly 190 banks operating in the United States are at potential 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 showed that a large number of banks are just uninsured deposit withdrawals away from a devastating collapse. It reads:
“Even if only half of uninsured depositors decide to withdraw, nearly 190 banks are at potential risk of impairment of insured depositors, with potentially $300 billion in insured deposits at risk.”
Monetary policies set by central banks can negatively impact 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 payment of all uninsured depositors – is insufficient to repay all insured deposits.
The data in the chart above represents assets based on bank call reports as of Q1 2022. Banks in the top right corner, next to SVB (with assets of $218 billion), have the most severe asset losses and the largest current uninsured deposits in Mark assets on the market.
The recent rise in interest rates, which has driven down the market value of US banking system assets by $2 trillion, coupled with a large proportion of uninsured deposits in some US banks, threatens their stability.
“Recent declines in the value of banking assets have significantly increased the vulnerability of the U.S. banking system to uninsured savers,” the study concluded.
Related: Breaking: SVB Financial Group files for Chapter 11 bankruptcy
As the federal government steps in to protect SVB and Signature Bank depositors, President Joe Biden assured there will be no impact on taxpaying citizens.
However, many pointed out Biden on Twitter That “Everything you do or touch costs the taxpayer!”