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Sunday, April 2, 2023

Economy: Nearly 200 banks could experience the same failure as the Silicon Valley Bank

A study reveals that 186 US banks are experiencing the same fragilities as Silicon Valley Bank (SVB), whose failure sent the banking system into a storm.

Is the fall of Silicon Valley Bank an isolated case or the first in a long list? According to a study by the Social Science Research Network, 186 US banks are at risk of failing due to rising interest rates and a high proportion of uninsured deposits.

According to the study, if half of uninsured depositors quickly withdraw their funds from these 186 banks, even insured depositors could face write-offs because the banks would not have enough assets to guarantee the integrity of all depositors.

However, the specialized site Business Today points out “that it is important to note that the investigation does not take into account the coverage, which can protect many banks against the increase in interest rates.”

For the New York Post, the problem is that “these banks keep a large part of their assets in financial instruments sensitive to interest rates.” “The value of old low-interest investments fell sharply when the Federal Reserve raised interest rates over the past year.”

The Social Science Research Network study finds that the 190 banks weakened by the SVB failure are at potential risk of deterioration for insured depositors, with a potential risk of $300 billion in insured deposits. The study authors also found an estimated $2 trillion loss in the market value of these banks.

As a reminder, when SVB, a bank specializing in start-ups, announced its difficulties and presented a plan to raise $500 billion from Wall Street, its clients rushed to withdraw their money, fearing that the bank would not run out of liquidity. A reflection that led to the bankruptcy of the Californian bank.


Stephane Sicard

Source: L Independant

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