New Study Finds Nearly 190 Banks Could Face Similar Fate as Silicon Valley Bank

A recent study published on the Social Science Research Network has identified that the US banking system is facing a potential risk of failure, with 186 banks at risk of a run on their assets, similar to the recent collapse of Silicon Valley Bank. This is due to the Federal Reserve’s interest rate hikes to tackle inflation, which have eroded the value of assets such as government bonds and mortgage-backed securities held by these banks. The paper suggests that even insured depositors with $250,000 or less in the bank are at risk of loss, as the FDIC’s deposit insurance fund starts to incur losses. While the government may intervene, the paper's calculations suggest that these banks are certainly at potential risk of a run. The study suggests that the collapse of Silicon Valley Bank, which held most of its assets in U.S. government bonds, was due to the market value of its bonds going down as interest rates increased. The bank also had a disproportionate share of uninsured funding, with only 1% of banks having higher uninsured leverage, leading to a run on its assets. This new report suggests that the banking industry needs to take appropriate measures to safeguard themselves and their customers from such financial risks.

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