Dave Boyer
The Washington Times, Mar. 19, 2023
“The banks’ troubles have been blamed in part on the Fed’s rapid series of rate hikes, which reduced the value of their long-term debt.”
Fears that another interest rate hike will hasten more bank failures will loom over the Federal Reserve’s meeting this week after a study found that nearly 200 banks are at risk of the same sort of collapse as the one at Silicon Valley Bank.
The fear is that another rate hike from the Federal Reserve to tamp down inflation will SAP the value of banks’ assets such as government bonds and mortgage-backed securities. That would make them vulnerable to a run by depositors — the same way SVB became insolvent.
“The recent declines in bank asset values very significantly increased the fragility of the U.S. banking system to uninsured depositor runs,” said economists at the Social Science Research Network. “Our calculations suggest these banks are certainly at a potential risk of a run, absent other government intervention or recapitalization.”
The network’s study estimated that 186 banks in the U.S. are vulnerable if just half of their depositors withdraw their funds.
In developments Sunday, banking giant UBS is buying troubled rival Credit Suisse for almost $3.25 billion, in a deal orchestrated by regulators in an effort to avoid further market-shaking turmoil in the global banking system.
And the Federal Reserve and five other central banks announced coordinated steps on Sunday to boost liquidity in their U.S. dollar swap arrangements, starting Monday. The Fed took action with the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank and the Swiss National Bank [To read the full article, click here]