A recent study published by the Social Science Research Network warns that some 186 banks in the United States could be at risk of bankruptcy such as Silicon Valley Bank (SVB)if customers decide to suddenly pull out all their money.
Silicon Valley Bank is called so far as the second largest banking collapse in the history of the United States after Lehman Brothers, in 2008. Analysts in this sense, concluded in the investigations that if depositors withdraw the money the Federal Deposit Insurance Corporation (FDIC) would not be able to support financial institutions.
“Our calculations suggest that these banks are indeed at potential risk of a run, absent further government intervention or recapitalization,” the economists in charge of the study noted.
The Social Science Research Network indicates that the real problem is that many of these banks, like SVB, have assets invested in government bonds and mortgage securities, therefore, they will be increasingly affected by increases in interest rates, having large losses that will lead them to become insolvent in the future.
“Even if only half of uninsured depositors decide to withdraw, nearly 190 banks are at potential downside risk for insured depositors, with a potential risk of $300 billion in insured deposits”, the analysts mention in the report.
SVB had sold the long-term mortgage bonds and securities at prices much lower than when they were purchased, taking a loss of $1.8 billion dollars, depositors panicked and began withdrawing their deposits immediately, which caused the collapse on March 10.
The report concludes that “if uninsured deposit withdrawals cause even small liquidations, many more banks are at risk,” it says, adding that “these calculations suggest that the recent falls in the values of bank assets increased the fragility of the banking system in a very significant way against the runs of uninsured depositors,” he says.
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Source: La Opinion
