not fun to hear
Nearly 200 banks at risk of SVB-type collapse, study finds
A new study published on the Social Science Research Network estimates that 186 other banks are at risk of failing like the now-doomed Silicon Valley Bank, USA Today reports.
Per the study, the banks could fail if only 50 percent of customers decide to suddenly pull their money, amounting to a run on the bank.
"Even if only half of uninsured depositors decide to withdraw, almost 190 banks are at a potential risk of impairment to insured depositors, with potentially $300 billion of insured deposits at risk," the study's abstract says. "If uninsured deposit withdrawals cause even small fire sales, substantially more banks are at risk."
The economists attribute the increased risk to interest rate hikes from the Federal Reserve, which have downgraded the value of bank-held assets like government bonds and mortgage-backed securities.
"The recent declines in bank asset values very significantly increased the fragility of the U.S. banking system to uninsured depositor runs," though such runs are most likely "absent other government intervention or recapitalization," the abstract continues.
Though more than likely brought on by a confluence of factors, the collapse of Silicon Valley Bank was, at the very least, a classic "mismatch between deposits and assets — the building blocks of the vanilla business of commercial banking," per The Wall Street Journal. SVB had also invested a chunk of change in long-term government bonds, which dropped in value as the Fed raised interest rates. But when the bank had to sell those bonds at a gargantuan loss to meet withdrawal demand, its loss position spooked customers and prompted a run.