Because of rising interest rates, U.S. banks hold $2 trillion less in assets than they appear to have on paper. As a result, the study found, some banks would not survive a scenario in which many customers withdrew some or all of their uninsured deposits.
found that 1,619 banks would be at risk of failing if all their uninsured deposits were withdrawn. In a scenario where half of uninsured investors withdraw their funds, 186 banks would be at risk, the study concluded.“Overall, these calculations suggest that recent declines in bank asset values very significantly increased the fragility of the U.S. banking system to uninsured depositor runs,” researchers wrote.
“That was a sign that we didn’t realize how much of a problem this interest-raise rise was going to cause the banking sector,” Jiang said. “If all uninsured depositors are not going to run, the banking sector is going to be fine. But the question is when uninsured depositors are running on banks. Then there are some issues.”, regardless of size, for the next two years. The FDIC insures deposits up to $250,000.
Instead it largely focuses on uninsured assets because depositors with uninsured funds would be more motivated to withdraw their money if they believe it is not safe. Without identifying any bank by name, the study found that of the 10 largest banks most at risk of a run, one has assets above $1 trillion; three have assets above $200 billion; three have assets above $100 billion; and the remaining three have assets above $50 billion.
In the case of Silicon Valley Bank, the study found it was not the worst capitalized bank in the country, nor was it the bank with the most unrecognized losses. What set it apart, researchers concluded, was a “disproportional share of uninsured funding.”According to S&P Global, entities had $151.6 billion in uninsured deposits at Silicon Valley Bank, or 93.9 percent of the company’s total holdings.
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