Nearly 200 more banks could be vulnerable to the same type of risk collapsed Silicon Valley Bank earlier this month, according to a recently published study.
Researchers with the Social Science Research Network found there are 186 banks across the United States that could collapse if half their respective uninsured depositors withdraw their funds. The Federal Deposit Insurance Corporation insures deposits up to $250,000, although the agency agreed to insure deposits worth far more than that after SVB’s collapse this month.
“Combined, losses and uninsured leverage provide incentives for an SVB uninsured depositor run,” said an abstract of the paper. “We compute similar incentives for the sample of all U.S. banks. Even if only half of uninsured depositors decide to withdraw, almost 190 banks are at a potential risk of impairment to insured depositors, with potentially $300 billion of insured deposits at risk. If uninsured deposit withdrawals cause even small fire sales, substantially more banks are at risk. Overall, these calculations suggest that recent declines in bank asset values very significantly increased the fragility of the US banking system to uninsured depositor runs.”…