The failure of Silicon Valley Bank seems to have unraveled a range of financial difficulties within the US banking sector. That the rising interest rates made matters worse for many banks is sufficiently established by now. But the larger question is whether the banks could survive a bank run? The Silicon Valley Bank customers withdrew uninsured deposits as fears grew about its bad financial health. Latest reports suggest that this is the kind of scenario that could replicate with many other US banks. if things go south.
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The last two weeks saw massive contagion from the failed banks spread to even the Wall Street majors. Hence, no wonder the smaller banks would have lesser strength to survive prolonged fear and uncertainty. The KBW Nasdaq Bank Index, which tracks performance of the leading banks in the US, dropped by around 30% in the last two weeks. Meanwhile, this came as a boon for the crypto market, which rallied heavily in the same period.
186 US Banks Face Risk
According to a Wall Street Journal report, economists found 186 banks that may be prone to Silicon Valley Bank like risks. A paper in the Social Science Research Network, estimated the market value lost by US banks during the Fed’s rapid rate increasing campaign. The US Fed began the interest rate hike spree in March of 2022. The report said economists studied the share of bank assets that are over the $250,000, above which are uninsured deposits. The report quoted economists as saying,
“Our calculations suggest these banks are certainly at a potential risk of a run, absent other government intervention or recapitalization.”
With these banks, customers who can be classified as insured depositors would also face difficulties due to lack of required assets with the banks. Hence, if the contagion spreads and continues with sell off in shares, it could benefit the crypto asset market in terms of fresh capital. Meanwhile, the Bitcoin price breached the $27,000 mark on Friday, ahead of the US Fed’s upcoming FOMC meet next week.
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