Banking Industry health after Silicon Valley Bank collapse
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620Billion unrealized losses [1] Loans held to maturity as well. Also don't drop. Normal that Bank runs kill a bank.
Bank Runs & Classifications
Current Deposit Rates
Deposit Rates still very low. No problem.
[2]https://www.forbes.com/advisor/banking/cds/us-bank-cd-rates/
https://fred.stlouisfed.org/series/SNDR
Deposits
Article: Bank Deposits: US
So-called “other” deposits, which exclude large time deposits, have fallen $260.8 billion at commercial banks since the week ended March 15 after the bank issues. They have declined more than 1 trillion since 2022.
Uninsured deposits
Large U.S. banks reported $7.891 trillion in estimated uninsured deposits at year-end 2022, almost a 41% increase since the end of 2019.
However, as deposits have started to leave the banking system to seek higher rates, the proportion of uninsured deposits at large U.S. banks dropped to 47.3% of total domestic deposits from a peak of 50.5% in the fourth quarter of 2021. This is near the 45.9% ratio seen at the end of 2019.
| Company | Uninsured deposits / domestic deposits (higher is riskier) | Loans and held-to-maturity securities / total deposits (higher is riskier) | YTD % change[3] |
|---|---|---|---|
| Bank of New York Mellon | 96.5% | 31.2% | -0.1% |
| SVB Financial Group | 93.9% | 94.4% | -53.9% |
| State Street | 91.2% | 40.1% | -1.8% |
| Signature | 89.7% | 93.3% | -39.2% |
| Northern Trust | 83.1% | 54.5% | -3.1% |
| Citigroup | 77.0% | 64.6% | 4.3% |
| HSBC Holdings | 72.5% | 47.4% | 11.9% |
| First Republic Bank | 67.7% | 110.6% | -69.1% |
| East West Bancorp | 65.9% | 91.1% | -13.9% |
| Comerica | 62.5% | 72.8% | -36.6% |
Reserves
Large Banks
Small Banks
Bank Lending
Article: Bank Lending: US
US bank lending contracted by the most on record in the last two weeks of March, indicating a tightening of credit conditions in the wake of several high-profile bank collapses that risks damaging the economy.
Mark to Market Losses
Disclaimer about the research:
- They did not account for derivatives heghes for the interest rate risks, which could make numbers look better
- They did not account for changes in credit risks, which could make numbers look worse
Recent research suggests that Tte market value of U.S. banking system assets is approximately $2 trillion lower than suggested by their book value. (see image for more details). [4]
The median value of banks’ unrealized losses is around 9% after marking to market. The 5% of banks with worst unrealized losses experience asset declines of about 20%. We note that these losses amount to a stunning 96% of the pre-tightening aggregate bank capitalization.
Market to market losses alone did not cause the recent problem
- SVB does not stand out as much in the distribution of marked to market losses. About 11 percent of banks suffered worse marked to market losses on their portfolio (Figure 2). In other words, if SVB failed because of losses alone, more than 500 other banks should also have failed.
Other relatively big banks could also be in danger, the research did not disclose names
- Out of the 10 largest insolvent banks ( A bank is considered insolvent if the mark-to-market value of its assets – after paying all uninsured depositors -- is insufficient to repay all insured deposits), 1 has assets above $1 Trillion, 3 have assets above $200 Billion (but less than $1 Trillion), 3 have assets above $100 Billion (but less than $200 Billion) and the remaining 3 have assets greater than $50 Billion (but less than $100 Billion).
The Role of Uninsured Leverage
The average bank funds 10 % of its assets with equity, 63% with insured deposits, and 23% with uninsured debt comprising uninsured deposits and other debt funding.
Banks differ significantly in the share of funding they obtain from uninsured sources. The 5th percentile bank uses 6 percent of uninsured debt. For this bank, 94% of funding is not run prone comprising equity and deposits.
On the other hand, the 95th percentile bank uses 52 percent of uninsured debt. For this bank, even if only half of uninsured depositors panic, this leads to a withdrawal of one quarter of total marked to market value of the bank. If any fire sale discounts result from these withdrawals, this can impose substantial losses on the remaining creditors, increasing their incentives to run.
10 percent of banks have larger unrecognized losses than those at SVB. Nor was SVB the worst capitalized bank, with 10 percent of banks have lower capitalization than SVB. On the other hand, SVB had a disproportional share of uninsured funding: only 1 percent of banks had higher uninsured leverage.
While the decline in asset values increased the ratio of uninsured deposits to assets, virtually all banks (barring two) have enough assets to cover their uninsured deposit obligations. In other words, if the FDIC does not step in to protect the deposit insurance or if the liquidation of the assets does not cause large enough fire sales, there may be no reason for uninsured depositors to run.
Credit Spreads
Credit Spreads have widened since the collapse of SVB. This will be especially important for the issuance of new debt.
High Yield
https://fred.stlouisfed.org/series/BAMLH0A0HYM2
BBB
https://fred.stlouisfed.org/series/BAMLC0A4CBBB
CCC
https://fred.stlouisfed.org/series/BAMLH0A3HYC
Euro High Yield
https://fred.stlouisfed.org/series/BAMLHE00EHYIOAS
Regulatory Issues
https://twitter.com/MacroAlf/status/1637449838496215042
Silicon Valley Bank
Special situation. Large capital inflows 2021. Invested in Long Term Maturities classified as Held-to-maturity. Large losses. Bank Run.
- Special Clients - VCs, Money outflows.
- SVB had a huge share of uninsured deposits, at 93%. [5]
- SVB did not had heghes to offset for the interest risks it took. [6]
First Republic Bank
Possible Affected Banks
Good overview: [7]
[8] First Republic Bank. 5Billion in losses held to maturity.
Signature Bank
Stable Coins
USDC
3.3billion of cash still with Silicon Valley Bank. Redemption will resume on Monday [9]. It is possible to gate redemptions or suspend them down altogether, which is important to prevent a run. [10] Coinbase partner and investor. [11]
Ways how USDC could be saved [12]
Thether
Money in short term investments. [13] Positive developments if you compare reports? [14] Audited by Italien franchise auditor BDO.[15] No auditing standards.
References
- ↑ https://www.fdic.gov/news/speeches/2023/spfeb2823.html
- ↑ https://www.fdic.gov/resources/bankers/national-rates/
- ↑ https://www.investors.com/etfs-and-funds/sectors/banks-report-most-exposed-to-uninsured-deposits/
- ↑ https://deliverypdf.ssrn.com/delivery.php?ID=916073065102098074098005011117089007031005031068030005011122071010111071127088114109050018100005055097010089127107091118073001055038014069012120114100031011116019036079067003012072028106075069028021119109075123005010127067089072026112069005065092005&EXT=pdf&INDEX=TRUE
- ↑ https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/svb-signature-racked-up-some-high-rates-of-uninsured-deposits-74747639#:~:text=Silicon%20Valley%20Bank%20ranked%20second,as%20of%20year%2Dend%202022.
- ↑ https://twitter.com/FedGuy12/status/1635263272705470467
- ↑ https://seekingalpha.com/article/4586797-list-of-banks-paper-losses-debt-securities-holdings
- ↑ https://www.fitchratings.com/research/banks/unrealized-bond-losses-elevate-us-banks-double-leverage-20-12-2022
- ↑ https://www.circle.com/blog/an-update-on-usdc-and-silicon-valley-bank
- ↑ https://www.circle.com/en/legal/usdc-terms
- ↑ https://insidebitcoins.com/news/theres-no-need-to-panic-about-the-usdc-depegging
- ↑ https://youtu.be/q7t2if8GAsU
- ↑ https://assets.ctfassets.net/vyse88cgwfbl/53L8YRM4ZHCEeqlpKbc3Q8/2e6cbcd1593b3e5ea867718c5938d6c8/Std_ISAE_3000R_Opinion_BDO_31-12-2022_Tether_CRR.pdf
- ↑ https://tether.to/en/transparency/#reports
- ↑ https://en.wikipedia.org/wiki/BDO_Global