A perfect mix of losses, uninsured leverage and a larger loan portfolio led to the collapse of Silicon Valley Bank (SVB). Comparing SVB’s situation with other players reveals that nearly 190 banks operating in the United States may be at risk of crackdowns.
The collapse of the SVB was a reminder of the fragility of the traditional financial system, but the recent analysis Economists said many banks showed uninsured withdrawals away from the catastrophic collapse. It read:
“Even if only half of the uninsured depositors decided to withdraw, about 190 banks would still be at potential risk of harming their insured depositors, worth $300 billion. of insured deposits could be at risk.”
Monetary policy by central banks can adversely affect long-term assets such as government bonds and mortgages, resulting in losses for banks. The report explains that banks are considered insolvent when the market value of their assets is insufficient to repay the full amount of their insured deposits after paying out all uninsured depositors. .
The data in the chart above represents assets based on the Bank Call Report for Q1 2022. Banks in the upper right corner mark the most severe asset losses and the largest viable uninsured deposits alongside SVB ($218 billion in assets). Asset to market.
The recent rise in interest rates, which has depressed the market value of assets in the US banking system by $2 trillion, combined with the large proportion of uninsured deposits in some US banks, threatens banking stability.
“The recent decline in bank asset values has significantly increased the vulnerability of the US banking system to crackdowns on uninsured depositors,” the study concludes.
Related: BREAKING: SVB Financial Group Files for Chapter 11 Bankruptcy
As the federal government steps in to protect SVB and signatory bank depositors, President Joe Biden has ensured tax-paying citizens will not be affected.
Thanks to the actions we’ve taken over the past few days to protect our depositors from Silicon Valley and signature banks, Americans can be confident that our system is secure.
People’s deposits are there when they need them, and they’re free for taxpayers.
— President Biden (@POTUS) March 13, 2023
But many pointed to Biden on Twitter or “Everything you do and touch is taxpayer’s expense!”