A new study by economists identified 186 banks at risk across the United States. These banks Silicon Valley BankIt might grapple with similar issues that caused the . The SVB collapsed earlier this week as the bank’s assets dwindled due to rising interest rates. This has led worried customers to withdraw their uninsured deposits.
Federal ReserveDuring the aggressive rate hike, economists evaluated US banks one by one. Experts evaluating asset books and market cap losses have come up with surprising results. Assets such as treasury bills and mortgage loans may fall in value, according to reports. This is what happens when new bonds offer higher rates. Economists also analyzed banks’ funding percentages. They focused on funds from uninsured depositors, that is, those with accounts over $250,000.
The findings point to a potentially very important problem. Even insured depositors could lose value if half of these uninsured depositors quickly withdraw money from any of these 186 U.S. banks. This is because the available assets for all depositors are insufficient. In such cases, the intervention of the FDIC may become necessary.
It is very important to note an important limitation in this research. The study was carried out without considering hedging strategies. These strategies can protect many banks against rising interest rates.
The economists also stated in their paper: “Our calculations show that these organizations are certainly at risk of potential bankruptcy in the absence of further government intervention or recapitalization.”
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