The banks that collapsed recently faced diverse challenges that affected their operations. For instance, Silvergate faced multiple regulatory actions due to its dealings with the bankrupt FTX exchange, its founder Sam Bankman-Fried and its sister company Alameda Research. It also cited the 2022 bearish market as part of the challenges that made it insolvent.
On the other hand, Silicon Valley Bank failed due to many losses in its operations and other factors. Signature Bank also faced challenges it couldn’t handle, leading to state intervention.
Apart from these three banks, economists have discovered more than 186 banks in the United States are already positioned to crash.
Economists Discover More Banks Set To Collapse
A recent report revealed that up to 190 banks in the US are already on the brink of a crash. Analyzing the failed Silicon Valley Bank, the analysts discovered that 10% of US banks currently have more unrecognized losses than the SVB. They also discovered that SVB capitalization is higher than 10% of existing banks.
However, SVB kept more share of uninsured funding since only 1% of banks had more uninsured leverage. So, the losses and uninsured leverage were enough to cause the uninsured depositors run that pulled SVB down.
The analysts pointed out that if others face a similar situation where half of their uninsured depositors move to withdraw, almost $300 billion of insured deposits will be at risk. Also, if the uninsured depositors’ withdrawals cause small fire sales, many US banks will be at risk.
What Happened To The US Banking Sector?
The economists disclosed that they analyzed the asset exposure of the banks in the US following the interest rates hike. They aimed to gauge how the US Federal Reserve’s moves affect the sector’s financial stability.
Unfortunately, the analysis revealed that the sector’s market value shows a shortage of $2 trillion on the book value of assets making up for loan portfolios held to maturity. It also showed that all the US banks recorded a 10% decline in their marked-to-market assets.
In conclusion, the economists stated that the declines in the values of bank assets had exposed them to the risk of insolvency if uninsured depositors decided to withdraw at once. Notably, depositors without insurance cover usually lose more when banks fail than their counterparts. As such, any hint of a bank crisis pushes them into a frenzy to avoid losses.
However, even though the situation seems dire for the US banking sector, the central bank intervention and US President Joe Biden’s assurance show the government’s readiness to support the sector. Also, a recent report disclosed that top firms in the US finance sector raised $30 billion to aid a failing US bank.
Featured image from Pixabay and chart from Tradingview.com
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Eli brings an eclectic point of view to market analysis. He was previously a brokerage director and online trading educator. Currently, he acts as a commentator across various asset classes, including Crypto, Stocks and FX, whilst also a startup founder.