As many as 190 banks could face the fate of Silicon Valley Bank, according to a new study

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Following the collapse of Silicon Valley Bank earlier this month, 186 more banks are at risk of failing even if only half of their depositors decide to withdraw their funds, a new Study has been found.

This because the Federal Reserve’s aggressive interest rate hikes to reduce inflation have eroded the value of bank assets such as government bonds and mortgage-backed securities.

“The recent collapse in bank asset values ​​has substantially increased the fragility of the US banking system to uninsured depositors,” economists wrote in a recent paper published on the Social Science Research Network.

SVB: The collapse of Silicon Valley Bank explained in graphics

Graphics: The ripple effect: how the collapse of Silicon Valley Bank is affecting other US banks

Economists wrote that a run on these banks could also pose a potential risk to insured depositors — those who have $250,000 or less in the bank — because of losses in the FDIC’s deposit fund.

Security guards let people enter the headquarters of Silicon Valley Bank in Santa Clara, California, March 13, 2023.

Of course, this scenario will only work if the government does nothing.

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

How did Silicon Valley Bank collapse?

In the case of Santa Clara-based Silicon Valley Bank, which had most of its assets in US government bonds, the market value of its bonds went down when interest rates started rising.

This because most bonds pay a fixed interest rate that becomes more attractive when interest rates fall, demand and the price of the rise.

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However, when interest rates rise, the low fixed interest rate paid by bonds no longer attractive to investors.

This timing coincided with the financial difficulties many of the banks’ customers – largely tech start-ups – were dealing with, forcing them to withdraw their deposits.

In addition, Silicon Valley banks had a disproportionate share of uninsured funding, with only 1% of banks having high uninsured leverage, the paper notes. “Combined, losses and uninsured leverage provide an incentive to run an SVB uninsured depositor.”

Swapna Venugopal Ramaswamy housing and economy correspondent for USA TODAY. You can follow him on Twitter @SwapnaVenugopal and sign up for our Daily Money newsletter here.

This article originally appeared on USA TODAY: New study says around 190 new banks may fail after SVB collapse