The current state of U.S. banking?
In this paper, Jiang et al. analyze U.S. banks’ asset exposure to a recent rise in the interest rates with implications for financial stability. They find 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 5th percentile experiencing a decline of 20%;
- 10 percent of banks have larger unrecognized losses than those at SVB and another 10 percent of banks have lower capitalization than SVB;
- Only 1 percent of banks have higher uninsured leverage than SVB.
Even if only half of uninsured depositors decide to withdraw, almost 190 banks are at a potential risk of impairment to insured depositors, with potentially $300 billion of insured deposits at risk. If uninsured deposit withdrawals cause even small fire sales, substantially more banks are at risk. Overall, these calculations suggest that recent declines in bank asset values very significantly increased the fragility of the US banking system to uninsured depositor runs.
Monetary Tightening and U.S. Bank Fragility in 2023: Mark-to-Market Losses and Uninsured Depositor Runs?
Authors: Erica Xuewei Jiang, Gregor Matvos, Tomasz Piskorski, Amit Seru
From: University of Southern California, Northwestern University, Columbia University, Stanford University
