Nearly 200 banks at risk for same fate as SVB: study

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About 200 more banks could be vulnerable to the same type of risk that took down Silicon Valley Bank: the value of the assets they hold.

There are 186 banks across the country that could fail if half of their depositors quickly withdrew their money. published a new study Found on the Social Science Research Network. Even insured depositors – those with $250,000 or less in the bank – could have problems getting their cash if these institutions face the kind of crisis Silicon Valley saw a week ago.

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What is worrying is that these banks hold a significant portion of their assets in interest rate sensitive financial instruments such as government bonds and mortgage-backed securities. The value of those old, low-interest investments declined rapidly as the Federal Reserve raised interest rates over the past year.

In SVB’s case, the Santa Clara, California-based institution parked most of its cash in long-term government bonds, which are ultra-safe in case of losing the initial investment, but were not worth much at the time SVB was purchased. , as interest rates have gone higher since then. The bank had to sell some of those bonds for less than they were paid to meet customer demands, resulting in a loss of about $2 billion.

186 Banks may be vulnerable to the same risks that doom Silicon Valley Bank.

svb — Many risk-averse banks keep their depositors’ cash in long-term assets such as bonds and mortgages.

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When SVB disclosed that loss, along with plans to raise an additional $500,000 million from Wall Street, it sparked fears among its venture capital and tech startup-heavy customer base that the bank was insolvent. In a panic sparked by social media, customers rushed to withdraw their money out of concern that the bank would end up having an affair – a classic bank run.

The federal government stepped in to promise that it would refund all depositors, not just those with the FDIC-limit $250,000, in an effort to prevent a widespread panic where depositors began withdrawing money from other banks that nearly are of similar size.

Now, the study suggests that one of those other banks may be vulnerable to the same development if a higher percentage of worried customers begin attempting to withdraw their deposits.

“Our calculations suggest that these banks are certainly at potential risk of a run, absent other government intervention or recapitalization,” the economists wrote.

The study looked at the asset books of banks nationwide, and found an estimated $2 trillion loss in their market value.