The perfect combination of losses, uninsured leverage and a larger loan portfolio resulted in the downfall of Silicon Valley Bank (SVB), among others. A comparison of SVB’s situation with other players revealed that nearly 190 banks operating in the United States are at potential risk of a run.
While the collapse of SVB came as a reminder of the fragility of the traditional financial system, recently analysis Economists have shown that large numbers of banks are just uninsured deposit withdrawals away from a devastating collapse. It said:
“Even if only half of uninsured depositors choose to withdraw, nearly 190 banks are at potential risk of defrauding insured depositors with $300 billion in insured deposits potentially at risk.”
Monetary policy written by central banks can have a negative impact on long-term assets such as government bonds and mortgages, which in turn can cause losses for banks. The report explains that a bank is considered insolvent if the market value of its assets – after all uninsured depositors have been paid – 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 upper right corner have the most severe asset losses and the largest current uninsured deposits per asset tag in the market, along with SVB (with $218 billion in assets).
Recent interest rate hikes that have knocked $2 trillion off the market value of the US banking system’s assets, combined with the large share of uninsured deposits at some US banks, threaten their stability.
“Recent declines in bank asset values have significantly increased the vulnerability of the U.S. banking system to uninsured deposits,” the study concluded.
Related: Breaking: SVB Financial Group files for Chapter 11 bankruptcy
When the federal government steps in to protect SVB and Signature Bank depositors, President Joe Biden has assured that taxpaying citizens will not be affected.
Thanks to the actions we’ve taken in recent days to protect depositors from Silicon Valley and Signature Banks, Americans can rest assured that our system is safe.
People’s deposits will be available when they need them – at no cost to taxpayers.
— President Biden (@POTUS) March 13, 2023
However, many took to Twitter to call attention to Biden that “Everything you touch costs the taxpayer!”