• SVB analysis revealed that nearly 190 US banks are potentially at risk of a run due to rising interest rates, large share of uninsured deposits and extensive loan portfolio.
• Central bank’s policies have put long-term assets such as government bonds and mortgages in danger, causing losses for the banks.
• A bank is considered insolvent if the mark-to-market value of its assets is insufficient to repay all insured deposits.
Rising Interest Rates Affect Banks’ Stability
Rising interest rates, which brought down the U.S. banking system’s asset market value by $2 trillion, combined with a large share of uninsured deposits at some U.S. banks, threaten banks’ stability and caused a fall of Silicon Valley Bank (SVB). Comparing SVB’s situation with other players revealed that nearly 190 banks operating in the United States are potentially at risk of a run due to rising interest rates, large share of uninsured deposits and extensive loan portfolio.
Monetary Policies Impact Asset Value
Monetary policies penned down by central banks can hurt long-term assets such as government bonds and mortgages, creating losses for banks. The report explains that a bank is considered insolvent if the mark-to-market value of its assets — once uninsured depositors are paid — is insufficient to repay all insured deposits.
Insolvency Risk If Uninsured Depositors Withdraw
Even if only half of uninsured depositors decide to withdraw money from their accounts, almost 190 US banks could be at risk of impairing insured depositors with potentially $300 billion in insured deposit withdrawals being threatened according to economists’ analysis.
Potential Losses Due To Insolvency
The data in the above graph represents the assets based on bank call reports as of Q1 2022 which shows potential asset losses due to insolvency as per various factors like percentage of uninsured deposits and mark-to-market assets when compared across different institutions including SVB with assets amounting upto $218 billion .
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