Many other lenders are also sitting on unrealized losses caused by the rapid rise in interest rates
Nearly 200 American banks face similar risks to those that led to the implosion and bankruptcy of Silicon Valley Bank (SVB), according to a paper posted this week to the Social Science Research Network. SVB, a major US lender focused on the tech and startup sectors, was shut down by regulators last week after massive deposit outflows.
In the study, four economists from prominent US universities estimated how much market value the assets held by US banks have lost due to recent interest rate hikes.
“From March 07, 2022, to March 6, 2023, the federal funds rate rose sharply from 0.08% to 4.57%, and this increase was accompanied by quantitative tightening. As a result, long-dated assets similar to those held on bank balance sheets experienced significant value declines during the same period,” they wrote.
Although higher interest rates can benefit banks by allowing them to lend at a higher rate, many US banks have parked a significant portion of their excess cash in US Treasuries. This was done when interest rates were at near-zero levels. The value of these bonds has now greatly decreased due to the rate hikes – investors can now simply purchase newly issued bonds that offer a higher interest rate. The decline in the banks’ portfolios is unrealized, meaning the value of the securities has declined but the loss is still only ‘on paper’.
The problem arises when customers request their deposits back and banks are forced to sell their securities – at a significant loss – in order to pay depositors back. In extreme cases, this can lead to a bank becoming insolvent, or as happened with Silicon Valley Bank, the loss of confidence can trigger a bank run.
The report’s authors looked into how the amount of US lenders’ funding that comes from uninsured deposits: the greater the share, the more susceptible a bank is to a run. For instance, at SVB, where 92.5% of deposits were uninsured, the deposit outflow caused the bank to collapse in a span of only two days. The authors of the study calculated that 186 American banks do not have enough assets to pay all customers if even half of uninsured depositors decide to withdraw their money.
“Our calculations suggest these banks are certainly at a potential risk of a run, absent other government intervention or recapitalization… 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,” the economists concluded, noting that the number of banks at risk could be “significantly” larger if “uninsured deposit withdrawals cause even small fire sales.”
SVB’s failure sent ripples across the entire US banking industry and caused the closure of another lender, Signature Bank. Many other financial institutions have seen their stocks plunge, with the six largest Wall Street banks losing around $165 billion in market capitalization, or some 13% of their combined value. Earlier this week, the ratings agency Moody’s downgraded its outlook for the US banking system from ‘stable’ to ‘negative’, citing the “rapidly deteriorating operating environment.”
It is my sincere desire to provide readers of this site with the best unbiased information available, and a forum where it can be discussed openly, as our Founders intended. But it is not easy nor inexpensive to do so, especially when those who wish to prevent us from making the truth known, attack us without mercy on all fronts on a daily basis. So each time you visit the site, I would ask that you consider the value that you receive and have received from The Burning Platform and the community of which you are a vital part. I can't do it all alone, and I need your help and support to keep it alive. Please consider contributing an amount commensurate to the value that you receive from this site and community, or even by becoming a sustaining supporter through periodic contributions. [Burning Platform LLC - PO Box 1520 Kulpsville, PA 19443] or Paypal
-----------------------------------------------------
To donate via Stripe, click here.
-----------------------------------------------------
Use promo code ILMF2, and save up to 66% on all MyPillow purchases. (The Burning Platform benefits when you use this promo code.)
Looks like Communism is fairing better against (((financial sabotage))). Maybe because the saboteurs are commies also.
I read about a time, long ago, when being a shit salesman was an honorable profession.
Times sure have changed!
A picture speaks a thousand words – well found Admin.
This is from 12.31.2022 … the next listing should cover as of 3.31.2023 and should be interesting …
https://www.usbanklocations.com/bank-rank/derivatives.html
Derivatives exposure :
#33 $31,088,000,000 Silicon Valley Bank
#60 $ 7,149,159,000 First Republic Bank
#443 $ 45,221,000 Signature Bank
I PREDICT!
These knob polishers are going to realize a whole LOT of shit in the near future…not the least of which is just how badly they’ve fucked themselves. But it’s the others whom they have screwed that should truly concern them now.
“More are coming!” – Fart, Rick & Morty
What, fractional banking at work? What could possibly go wrong!
MY Dad told me this joke a long time ago.
A street vendor is selling bananas from his cart and a guy walks up to him and asks how much. The vendor replies “$0.25 a bunch”.
“The guy down the street is selling them for $0.05 a bunch!”
“So go down the street and buy your bananas there.”
” Well, he’s out.”
“Yeah, well I could sell bananas for a nickel a bunch too if I didn’t have any!”
[youtube
It’s like my dad (a market trader at the time) told me there was a long, steep hill with traders all along the market road. At the bottom, a trader was selling apples for £2/doz. But at the top of the hill a trader was selling his for £1/doz. Dad explained that customers are generally lazy and will resist climbing a hill for a small deal, so he said never rent a shop at the top of a hill.
But then he said, he was the only person with a bike in those post-war days. So he rode up the hill, bought all the apples for £1/doz and came down to bottom of the hill and sold them for £2/doz.
He could have course given the trader at the top a contract to buy all the apples, whip down the hill and negotiate the sale of the contract to the trader at the bottom, taking a discount, making a smaller profit without the effort of actually moving the stock. He called this market arbitrage.
Wonderful illustration of properly invested capital.
Were an American MBA consultant in the loop:
LOL – I love you! The ultimate business model indeed says it all – the madness of Silicon Valley et al. And masses of dumb investors fall for the hype. This is all the result of free money for 14 years or more. It mushes the brain like giving free chocolate to kids.
These people are babies with their fingers in the cookie jar. It has to end in crisis soon as the financial system melts down when hopefully the producers will be left standing. With magical thinking like this I am sure you will be one anyway!
Soon a catastrophe for we, the cynics residing in a country that must, of course, abuse our older, wiser allies on its way to ignominious defeat against civilized order and common sense.
But thank you, A.P. for bringing good journalism and public house bruit from Jolly Old Blighty for us here in Ameristain all these gentle years. Your commentary will be surely missed as reckoning comes for our Sorcerer’s Apprentices of magical, spastical thunk.
I do hope your next Ollie Cromwell can maintain focus in a post Yank do-over.
Thank you for your kind appreciation WWZ; it is a privilege to serve my fellow patriots across the pond – there’s so few left here and not much else to speak of. My Plan B will go into effect next year if Cape Town gets it act together which is looking possible so far.
Read and bookmarked that for a S.A. revival. By a process of eliminating unworthy outcomes, may you be very blessed, good fellow!
Don’t forget to poison any actual apples.
Thx! Working closely with FDA and NIH on that.
Thats why I bank with Fifth Third Bank. Any bank that can survive as long as they have as an improper fraction is going to survive the coming fractional compression event. Probably even with a bit leftover.
Those fiends are pernicious! I once did a re-fi and ended up with them buying my mortgage. Dumped them like a hot rock at the first opportunity.
Unscrupulous doesn’t begin to describe them.
…and their customer service is ABYSMAL.
More importantly, as with SVG, too much DIE agenda being pushed and no one’s around who understand risk management and other fundamentals of sound banking practice …
‘Get woke, go broke’ writ large … across the whole First World, it seems.
The billion dollar questions:
How long can the central bank’s keep this thing flying and will we glide to the bottom or drop like a rock?
As long as it takes to get your last dime and not a second longer.
You get the rock.
They get the parachute.
So long, Wile E. Coyote!
This example just occurred to me, and is for those arguing whether this or that is stupid or evil.
If you’re buying derivatives, you’re stupid.
If you’re selling them, you’re evil.
I hope this puts things into perspective.
My Mom, a business woman, said:
If you borrow long and lend short – profit
If you borrow short and lend long – loss.
She also had various quips, here’s a sample:
Cash is King. Profit is historically fictional. Budgets are the future.
There’s 4 kinds of budget. Forecasts. Targets, Projections and a dart board (the real one)
Gambling is for outsiders. Investing is for insiders.
If you’re going to go, go BIG – for a couple of million – they can’t get blood from a stone
Don’t borrow from a bank, use your creditors’ free money
Always ask for a discount – if you are holding their stock, you deserve it.
It’s not selling that’s important, it’s buying. If you buy right, you can sell right
Don’t worry, the creditors are paying (especially the government)
If in doubt, have a fire and claim on the insurance.
You and I view being an outsider very differently.
To clarify. Mom was specifically referring to trading on the markets (which is generally a lose if you don’t have enough info – viz ‘outsider’).
Largest US Bank Failures, Adjusted for Inflation:
1. Washington Mutual (2008): $434 billion
2. Silicon Valley Bank (2023): $209 billion
3. Signature Bank (2023): $110 billion
4. Continental Illinois (1984): $107 billion
5. First Republic (1988): $84 billion
6. American Savings (1988): $78 billion
7. Bank of New England (1991): $48 billion
8. MCorp (1989): $46 billion
9. IndyMac (2008): $45 billion
10. Colonial Bank (2009): $35 billion
More than 186 banks are estimated to be facing the same issues as SVB.
The $64K question is now, what are the names of the 186 banks? Inquiring minds want to know.
I would start with the ones who’ve had their bank stock trading halted on the exchange in the last 6 Mos. There are plenty… smart money already knows.