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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 19:21, 16 March 2023
, 16 March 2023→Mark to Market Losses
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== Mark to Market Losses == | == Mark to Market Losses == | ||
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 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. | |||
=== 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. | |||
== Silicon Valley Bank == | == Silicon Valley Bank == | ||