Banks that collapsed recently faced various challenges affecting their operations. For example, Silvergate faced several regulatory actions due to its dealings with the bankrupt FTX exchange, its founder Sam Bankman-Fried and its sister company Alameda Research. It also mentions the 2022 bearish market as part of the challenge that creates bankruptcy.
On the other hand, Silicon Valley Bank failed due to many losses in operations and other factors. Signature Bank is also facing challenge it can not handle, leading to the intervention of the state.
Apart from these three banks, economists found more than 186 banks in the United States that have been in a position to crash.
Economists Find More Banks Found Collapsing
A new report revealed that up to 190 banks in the US have been on the brink of failure. Analyzing the failed Silicon Valley Bank, the analysts found that 10% of US banks now have more undisclosed losses than SVB. They also found that SVB’s capitalization is higher than 10% of existing banks.
However, SVB maintains more uninsured funds because only 1% of banks have more leverage than uninsured. Thus, uninsured losses and leverage are enough to cause uninsured depositors to run which pulls SVB down.
Analysts say that if others face a similar situation where half of uninsured depositors will withdraw, nearly $300 billion of insured deposits will be at risk. Also, if uninsured depositor withdrawals lead to a small fire sale, many US banks will be at risk.
What is happening to the US Banking Sector?
Economists say that they analyze the exposure of banks’ assets in the US after the increase in interest rates. They aim to measure how the movements of the US Federal Reserve affect the financial stability of the sector.
Unfortunately, the analysis shows that the sector’s market value represents a shortfall of $2 trillion in the book value of the assets that make up the portfolio of held-to-maturity loans. It also shows that all US banks recorded a 10% decline. marked-to-market assets.
In conclusion, economists say that the decline in the value of bank assets has led to the risk of insolvency if uninsured depositors decide to withdraw. In particular, uninsured depositors usually lose more when banks fail than their counterparts. So, there are signs of a bank crisis making them panic to avoid losses.
However, even if the situation looks bad for the US banking sector, the intervention of the central bank and the guarantee of the US President Joe Biden show the readiness of the government to support the sector. Also, new report announced that the top company in the US financial sector raised $ 30 billion to help failing US banks.
Featured images from Pixabay and charts from Tradingview.com