Banking Industry health after Silicon Valley Bank collapse: Difference between revisions

Banking Industry health after Silicon Valley Bank collapse (view source)

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 == Mark to Market Losses ==
-Disclaimers about this paper research:
-* They don't account for derivatives hedging  the interest rate risk, which could make things look better
-* They don't account for changes for credit risk in assets, which could make things look worse
 [[File:Banks 1.PNG|thumb|[https://deliverypdf.ssrn.com/delivery.php?ID=916073065102098074098005011117089007031005031068030005011122071010111071127088114109050018100005055097010089127107091118073001055038014069012120114100031011116019036079067003012072028106075069028021119109075123005010127067089072026112069005065092005&EXT=pdf&INDEX=TRUE Mark-to-Market Statistics by Bank Size]]]
 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). <ref>https://deliverypdf.ssrn.com/delivery.php?ID=916073065102098074098005011117089007031005031068030005011122071010111071127088114109050018100005055097010089127107091118073001055038014069012120114100031011116019036079067003012072028106075069028021119109075123005010127067089072026112069005065092005&EXT=pdf&INDEX=TRUE</ref>
-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 losso a stunning 96% of the pre-tightening aggregate bank capitalization.
+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.
 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.
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 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.
-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.
 == Silicon Valley Bank ==