SVB research shows that over 186 US banks are in dire danger of failing

By: Mark Jessy

March 22, 2023 6:25 AM

The asset market value of the U.S. banking system has dropped by $2 trillion due to rising interest rates, and several U.S. banks also have a substantial percentage of uninsured deposits.

The failure of Silicon Valley Bank was due to a number of issues, including but not limited to: losses, uninsured leverage, and a large loan portfolio (SVB). Based on SVB's circumstances and those of other players, we can conclude that almost 190 US banks face the possibility of a run.

While the failure of SVB served as a reminder of the vulnerabilities of the conventional financial system, a recent economic analysis revealed that a huge number of banks face threats from customers withdrawing funds from accounts that are not insured. In part, it said

"If even half of uninsured depositors pull their money out, nearly 190 institutions might be harmed, putting $300 billion in insured deposits at risk."

As a result of central banks' monetary policies, financial institutions may suffer losses on long-term assets like mortgages and government bonds. According to the report, a financial institution is insolvent if its mark-to-market value of assets is less than the total of its insured deposits after all uninsured depositors have been compensated.

The largest failing banks, if their uninsured depositors pull out. Source: papers.ssrn.com

Assets as of the first quarter of 2022, as reported by banks via call reports, are depicted in the preceding graph. The top right banks, including SVB (with $218 billion in assets), have the highest mark-to-market asset losses and the highest proportion of uninsured deposits.

Banks in the United States are vulnerable due to a combination of factors, including the recent increase in interest rates, which lowered the asset market value of the banking system by $2 trillion, and a big portion of uninsured deposits at some U.S. banks.

Recent falls in bank asset prices have made the US banking system more vulnerable to runs by depositors who aren't covered by deposit insurance, the study found.

Vice President Joseph Biden assured the public that taxpayers would not be affected by the federal government's action to safeguard depositors at SVB and Signature Bank.

On the other hand, one Twitter user reminded Biden that "everything you do or touch costs taxpayers!"