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Banking Industry health after Silicon Valley Bank collapse: Difference between revisions
Banking Industry health after Silicon Valley Bank collapse (view source)
Revision as of 20:13, 16 March 2023
, 16 March 2023→Mark to Market Losses
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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. | 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. | ||
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). | 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). | ||
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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. | 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. | 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. | ||