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Academic study flags 186 banks vulnerable to a run like Silicon Valley Bank

By Steve Gelsi

Bank fragility is tied to the type of assets held on balance sheets being worth less partly because of rising interest rates

A new academic study on 2023 bank fragility concludes that 186 U.S. banks remain vulnerable to a run on deposits that doomed Silicon Valley Bank, Signature Bank and Silvergate bank in the past week.

The paper by four professors concludes that the U.S. banking system's market value of assets is $2 trillion lower than suggested by their book value of assets accounting for loan portfolios held to maturity.

"Marked-to-market bank assets have declined by an average of 10% across all the banks, with the bottom fifth percentile experiencing a decline of 20%, according to the study, which was released Monday.

Erica Xuewei Jiang of University of Southern California, Gregor Matvos of Northwestern University's Kellogg School of Management, Tomasz Piskorski of Columbia Business School, and Amit Seru of Stanford University authored the 20-page study of uninsured deposits at banks.

The professors found 186 banks with a negative insured deposit coverage ratio. Banks in this bucket could be putting insured deposits at risk.

The study did not name the banks or take into account the role of the Fed's new Bank Term Funding Program, which was announced this past weekend.

Some of the key issues that caused the demise of Silicon Valley Bank are also present in many U.S. banks.

The exception with Silicon Valley Bank, however, was its "disproportionate" share of funding from uninsured deposits. In this category, only 1% of banks had higher uninsured leverage than Silicon Valley Bank, the study said.

However, 10% of banks have larger unrecognized losses than Silicon Valley Bank (SVB) and 10% of banks have lower capitalization than SVB.

-Steve Gelsi


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03-15-23 1624ET

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