Almost 190 US banks could collapse anytime: Post-SVB Analysis

A recent intensive and comparative study by economists revealed that 190 US banks could be in a Silicon Valley Bank-like situation. Many US banks are at risk of bank runs.

SVB Analysis and Other Banks

Uninsured leverage and sudden losses triggered SVB implosion. This incident came after the collapse of Silvergate and was followed by the collapse of Signature bank, which the regulators shut down. The collapses spurred fears of a banking crisis and credit crunch and are spreading fears of a bigger and deeper economic crisis.

SVB’s collapse highlighted, again, the fragile nature of the traditional financial system. A study by economists indicated that many banks are still at risk. The study says that, even if half of the uninsured depositors one day decide to withdraw, nearly 190 banks would be in deep trouble with the impairment of uninsured depositors. It is to be noted nearly $300 billion of insured deposits would also be at risk.

A shocking revelation from the study

Central banks’ monetary policies could hurt long-term assets like mortgages and government bonds, thereby creating bank losses. The report touches on a point where banks are generally considered insolvent, when the mark-to-market value of their assets, after the payment of uninsured depositors, is insufficient to repay every insured deposit.

Data shows that many banks, like SVB, have a severe asset loss and a huge percentage of uninsured deposits to mark-to-market assets. Another reason that threatens banking stability are the recent and sudden rise in interest rates. This rise brought the US banking system’s asset market value down by $2 trillion.

The study concludes by saying that,

“Recent declines in bank asset value significantly increased the fragility of the US banking system to uninsured depositors runs.”

The implication of the banking crisis and the Government

The federal government is believed to have taken steps to put the crisis genie back in the bottle. They are taking steps to protect the depositors of Signature Bank and SVB. The US President assured that no taxpaying citizen would be impacted.

Thanks to actions we’ve taken over the past few days to protect depositors from Silicon Valley and Signature Banks, Americans can have confidence that our system is safe.
People’s deposits will be there when they need them – at no cost to the taxpayer.
— President Biden (@POTUS) March 13, 2023

The recent banking crisis, credit crunch and approaching recession have created panic in the market. Some say the current situation is worse than 2008 and might spill into a years-long global recession. In 2022, the crypto industry was dotted with failures, bankruptcies, collapses, liquidity crunch, and lack of volume.

A slower global economy, the Russia-Ukraine war, and many other factors have pushed the financial system to its breaking point. Fear of economic contagion are real – major companies have cut corners, shed working staff, halted major projects and are now using funds sparingly.

Andrew is a blockchain developer who developed his interest in cryptocurrencies while his post-graduation. He is a keen observer of details and shares his passion for writing along with being a developer. His backend knowledge about blockchain helps him give a unique perspective to his writing