186 banks could suffer the same fate as svb

BTJ Desk Report
186 banks could suffer the same fate as svb

Economists said that they found 186 banks that may be prone to similar risks of Silicon Valley Bank, Signature and First Republic in the US, and Credit Suisse.

In just a week, the four banks failed. Among them, SVB failed after rising interest rates reduced the value of its assets and worried customers scrambled to withdraw uninsured deposits.

According to a study paper posted this week to the Social Science Research Network, the economists estimated how much market value individual US banks’ asset books have lost during the Fed’s rapid rate-increasing campaign.

The value of such assets, which often include as Treasury notes and mortgage loans, can fall when new bonds have higher rates.

The economists also examined the proportion of banks’ funding that comes from uninsured depositors, or accounts with more than $250,000.

They estimated that there are 186 US banks where, if half of uninsured depositors quickly withdrew their funds, even insured depositors could face impairments because the bank wouldn’t have enough assets to make all depositors whole, potentially forcing the FDIC to step in.

The research carries an important caveat: It does not take into account hedging, which may help protect many banks against rising interest rates.

“Our calculations suggest these banks are certainly at a potential risk of a run, absent other government intervention or recapitalization,” the economists wrote.


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