Study finds 186 banks vulnerable to SVB-like collapse

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A new study states that, based on certain market conditions, about 200 US banks may suffer a similar fate as Silicon Valley Bank (SVB).

recently Social Science Research Network Studies suggests that 186 US banks could fail if half of their depositors suddenly withdrew their money. The researchers created a speculative scenario in which each bank experienced a run and concluded that the FDIC would run out of money.

The study was published shortly after the collapse of SVB, the worst US financial institution since 2008.

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

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SANTA CLARA, CALIFORNIA – MARCH 10: The logo of Silicon Valley Bank (SVB) is seen through a rain covered window in front of the SVB headquarters on March 10, 2023 in Santa Clara, California.

The study’s abstract states, “Even if only half of uninsured depositors decide to withdraw, approximately 190 bank insured depositors are at potential risk of loss, potentially $300 billion in insured deposits.” are at risk.” “If there is even a small amount of fire selling due to unsecured deposit withdrawals, substantially more banks are at risk.”

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The issue lies in the fact that the assets of the banks studied are in government bonds and mortgage-backed securities, which were negatively affected by the Federal Reserve’s recent interest hikes.

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Customers line up outside SVB

SANTA CLARA, CALIFORNIA – MARCH 10: An employee (C) tells people that the headquarters of Silicon Valley Bank (SVB) is closed on March 10, 2023 in Santa Clara, California.

SVB had many properties Long term government bonds. Despite being a solid long-term investment, they are not worth much when SVB originally bought them. SVB invested heavily in long-term mortgage securities with more than 10 years to maturity.

SVB sold those bonds at a staggering loss of $1.8 billion to meet customer withdrawals. When SVB disclosed the loss, depositors panicked and withdrew their money.

Silicon Valley Bank

People queue outside the closed Silicon Valley Bank (SVB) headquarters on March 10, 2023 in Santa Clara.

“Overall, these calculations suggest that the recent decline in bank asset values ​​has significantly increased the fragility of the US banking system to uninsured depositors.” The essence of the study ends.

Fox Business has reached out to the FDIC for comment, but has not received a statement.