2315 OUT OF 4800 AMERICAN BANKS ARE INSOLVENT
- WWHISPER
- May 10, 2023
- 2 min read
Almost half of the 4,800 banks in the US are close to insolvency, having exhausted their capital buffers.
According to Professor Amit Seru, a banking expert at Stanford University, about half of US lenders are underwater.
"Let's not pretend this is only about Silicon Valley Bank and First Republic," he said. "Much of the US banking system is potentially insolvent."
Last week, First Republic was seized by US financial regulators and acquired by JPMorgan, the country's largest bank. The San Francisco-based lender had earlier received a $30 billion bailout shot from a group of Wall Street banks in the form of deposits. The sale of First Republic Bank followed massive deposit runs in March, causing two regional lenders, Silicon Valley Bank and Signature Bank, to fail within days.
On Thursday, shares of Los Angeles-based PacWest and Arizona-based Western Alliance were suspended after their share prices fell dramatically. Earlier in the week, shares of several regional US lenders plunged by at least 15%, leaving investors worried about the financial health of other mid-sized banks.
Some 2,315 US banks are currently sitting on assets worth less than their liabilities, according to a Hoover Institution report by Professor Seru and a group of banking experts, as quoted by the media.
The market value of the loan portfolios of these lenders is reportedly $2 trillion below their stated book value.
Professor Seru questioned the measures taken by US financial regulators to address the problems of crisis-hit mid-sized lenders. Regulators can contain the immediate liquidity crisis by temporarily guaranteeing all deposits, Seru said, however, saying this would not address the larger solvency crisis.
The two crashes in US commercial real estate and the US bond market have collided with $9 trillion in uninsured deposits in the US banking system. Such deposits could disappear in an afternoon in the cyber age.
The second and third largest bank failures in US history followed in quick succession. The US Treasury and the Federal Reserve would have us believe that they are "wayward". This is a dangerous subterfuge.
A Hoover Institution report by Professor Seru and a group of banking experts calculates that more than 2,315 US banks currently have assets worth less than their liabilities. The market value of their loan portfolios is $2 trillion below their stated book value.
Among these lenders are big beasts. One of the 10 most vulnerable banks is a global systemically important entity with assets of more than $1 trillion. Three others are large banks. "It is not just a problem for banks of less than $250 billion that did not have to pass stress tests," he said.
The US Treasury and the Federal Deposit Insurance Corporation (FDIC) thought they had contained the crisis by bailing out uninsured Silicon Valley Bank and Signature Bank depositors with a "systemic risk exemption" after these lenders collapsed in March.
In this link, the Hoover Institute report published by Stanford University.
What about European banks ? They aren't doing much better since the incident with Crédit Suisse in Switzerland ( see earlier article ) but are keeping their lips tightly sealed. For now. The jug goes as long the water until it breaks.
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