BNY Mellon and Other US Banking Giants Face High Risk from Uninsured Deposits, Report Reveals

• A recent report highlights the precarious position of 94 US banks, which are at considerable risk of bank runs by uninsured depositors.
• The report from Florida Atlantic University reveals that several large financial institutions have a high percentage of uninsured deposits.
• Professor Rebel A. Cole emphasizes the susceptibility of these banks to liquidity crises due to their high exposure to uninsured deposits.

This comprehensive report examines the vulnerability of major US banks to liquidity crises, shedding light on the reasons behind their precarious position and potential risks for the broader financial system.

Significant Risk of Bank Runs Identified Among US Banks

An in-depth analysis from Florida Atlantic University has identified 94 US banks at substantial risk of bank runs by uninsured depositors in the event they exhibit any financial instability. These institutions have reported a ratio of uninsured deposits to total deposits exceeding 50%, a threshold that signals heightened vulnerability. Among these banks are several prominent names, including BNY Mellon, State Street Bank, and Citibank, all of which are major players in the US financial system.

Notable Banks and Their Exposure Levels

The Liquidity Risk from Exposures to Uninsured Deposits index from Florida Atlantic University provides a clear view of the banks most at risk. BNY Mellon stands at the top with a staggering 100% ratio of uninsured deposits, followed closely by State Street Bank at 92.6%, and Northern Trust with 73.9%. Other significant names on the list include Citibank at 72.5%, HSBC Bank at 69.8%, JP Morgan Chase at 51.7%, and U.S. Bank at 50.4%. These figures underscore a critical issue within the banking sector and raise concerns about the stability and resilience of these financial institutions.

Expert Insights into Potential Liquidity Crises

Professor Rebel A. Cole, a finance professor at Florida Atlantic University, explains that banks with a high ratio of uninsured deposits are more prone to liquidity crises. Uninsured depositors, lacking the safety net of federal insurance, are more likely to withdraw their funds at the first sign of trouble, potentially triggering a bank run. Cole points to the recent failure of Republic First Bank of Pennsylvania as a warning sign. Republic First Bank, which had a 51.5% ratio of uninsured deposits, was ranked 87th on the previous quarter’s list, exemplifying the rapid deterioration that can occur under these circumstances.

The Role of Federal Safety Nets

Although FDIC insurance covers deposits up to $250,000, recent high-profile bank failures have shown that additional measures might be necessary to prevent widespread panic. During the collapses of Silicon Valley Bank, Signature Bank, and First Republic Bank, federal authorities invoked a systemic risk exception to protect all depositors, underscoring the gravity of the situation. In the case of Republic First Bank, the FDIC arranged for Fulton Bank to assume all deposits swiftly, illustrating the mechanisms in place to manage such crises.

Conclusion

The findings from Florida Atlantic University reveal significant vulnerabilities within some of the largest US banks due to their high ratios of uninsured deposits. The potential for bank runs poses a serious risk, necessitating vigilantly monitoring and robust risk management strategies. While federal mechanisms can provide some protection, the underlying issues highlight the need for ongoing financial scrutiny and regulation to maintain stability in the banking sector.