A new study shows that nearly 190 banks are on the verge of collapsing.
Several reports throughout the year have highlighted a crisis amongst the banking system.
After the collapse of Silicon Valley Bank and Signature Bank in March and First Republic Bank in April, a study on the fragility of the U.S. banking system found that 183 more banks are at risk of failure even if only half their uninsured depositors—those with deposits greater than $250,000—decide to withdraw their funds, USA Today reported.
“The recent declines in bank asset values very significantly increased the fragility of the U.S. banking system to uninsured depositor runs,” economists wrote in a recent paper published on the Social Science Research Network.
“So, our calculations suggest these banks are certainly at a potential risk of a run, absent other government intervention or recapitalization.”
Regional banks are failing because the Federal Reserve’s aggressive interest rate hikes to clamp down on inflation have eroded the value of bank assets such as government bonds and mortgage-backed securities, reported USA Today.
“If a ‘confidence crisis’ can happen to First Republic, it can happen to any bank in this country,” says Jake Dollarhide, Chief Executive Officer of Longbow Asset Management.
A run on these banks could pose a risk to even insured depositors—those with $250,000 or less in the bank—as the FDIC’s deposit insurance fund starts incurring losses, the economists wrote.
Liquidity in Banks is Running Dry
The report circling the banking sector suggests that liquidity in banks is running dry.
Below will be a few statements from the official report.
“The U.S. banking system’s market value of assets is $2.2 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%.
We show that a bank’s survival depends on the market beliefs about the share of uninsured depositors who will withdraw money following a decline in the market value of bank assets.
A case study of the recently failed Silicon Valley Bank (SVB) is illustrative. 10 percent of banks have larger unrecognized losses than those at SVB.
Nor was SVB the worst capitalized bank, with 10 percent of banks having lower capitalization than SVB.
On the other hand, SVB had a disproportional share of uninsured funding: only 1 percent of banks had higher uninsured leverage.
Combined, losses and uninsured leverage provide incentives for an SVB uninsured depositor run.
We compute similar incentives for the sample of all U.S. banks.
Even if only half of uninsured depositors decide to withdraw, almost 190 banks with assets of $300 billion are at a potential risk of impairment, meaning that the mark-to-market value of their remaining assets after these withdrawals will be insufficient to repay all insured deposits.”
Which Banks Are at Most Risk Right Now?
Banks that have the most risk right now are:
- First Republic Bank
- Huntington Bancshares
- Truist Financial
- Cullen/Frost Bankers
- Zions Bancorporation
The “Top 5” also have a big risk factor, though many have deemed these banks as “too big to fail”.
- Bank of America
- JPMorgan Chase
- Morgan Stanely
- Wells Fargo
Is your money safe in banks?
“It’s not a problem unless your depositors decide it’s a problem and ask you for their money back, which is sort of what happened with Silicon Valley Bank,” said David Sacco, a finance professor at the University of New Haven.
This is why banks at the moment are offering higher CD rates as well as higher yield savings accounts.
As long as majority of the population continues to keep their money in banks and aren’t resorting to withdraw large amounts of cash, there’s a possibility that the current banking crisis begins to die down.
Other Banking News
The nation’s largest bank JPMorgan (NYSE:JPM) is facing a painful $1.5 billion fee that may also be felt by various other banks later this year.
The Federal Deposit Insurance Corporation’s board of directors approved a proposal to raise the fees banks pay to have depositors’ money insured.
This comes after the government insured depositors’ money that exceeded the $250,000 insurance cap at Silicon Valley Bank and Signature Bank to stem the panic that ensued from their failures.
In total, that depleted $15.8 billion from the FDIC’s Depositor Insurance Fund (DIF).
Banks that are FDIC-insured pay fees to the fund in exchange for coverage in the event that they fail.
To recover the $15.8 billion, the FDIC is proposing levying higher fees on banks that have more than $5 billion in uninsured deposits.
The FDIC is focusing on these banks since they benefited the most from the FDIC’s unprecedented actions in the wake of the collapse of SVB and Signature Bank, according to CNN.
The proposed rule would charge banks 0.125% annually for two years on all their uninsured deposits as of the end of last year after deducting $5 billion.
JPMorgan Chase would pay around $1.5 billion in additional fees given the bank had around $1.2 trillion in uninsured deposits at the end of 2022, according to FDIC records.
Dr. Stephen Leeb, one of the world’s top money managers, says that JPMorgan’s gold derivate short positions are so numerous and large that they likely exceed the entirety of the bank’s assets on hand – “which is a very dangerous position in which to be.”
“Should the price of gold ever shoot up from its current price by, say, another $1,000 in the coming weeks or months due to an unexpected “black swan” event, banking giant JPMorgan Chase would more than likely find itself underwater due to the massive gold derivative short positions it currently holds,” says Planet Today.
JPMorgan Now Freezes Customer Account After Whopping Withdrawal
A new report is going viral after JPMorgan froze a customer account after withdrawing $99bn without explanation.
The report is quite bizarre, however; most wouldn’t be surprised given the banks long history of scandals.
According to the user, the withdrawal automatically caused his account to freeze, and all attempts to contact customer support for an explanation have failed.
“My checking account has been like this since last Monday and I’ve called Chase and been transferred to five different departments and nobody knows WTF is going on.
And I’ve got a mortgage due at the first of the month. Once this clears up, because of Chase’s incompetence I’m considering switching to Wells Fargo,” said the user.
But this isn’t the first time a JPMorgan customer account has been overdrawn by $99bn says DailyHodl.
“In April of 2016, a woman in Chicago abruptly realized $99 billion had been withdrawn from her deceased mother’s bank account.
At the time, Chase told ABC News it was “investigating the issue”.
And in February of 2020, a woman in Texas was shocked to see that the account that she shared with her late husband was also overdrawn by more than $99 billion.
In response to that report, a Chase representative said it routinely places massive debt on accounts held by people who have passed away to protect against unauthorized withdrawals.”
Early this month, it was reported that JPMorgan began to abruptly close business accounts as well as personal accounts in its latest scandal.
More on that below.
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