Nearly 200 banks around the country are at risk of suffering the same fate as Silicon Valley Bank, according to a new study.
A recent report from the banking research firm Fitch Ratings found that nearly 200 banks are vulnerable to the same liquidity issues that led to the collapse of SVB. The study found that these banks have similar levels of dependence on short-term funding, making them particularly vulnerable in a liquidity crisis.
The study identified the most vulnerable banks as those with high concentrations of deposits, low levels of liquid assets, and a reliance on short-term funding sources. These banks are particularly vulnerable to liquidity disruptions, which could lead to their failure in the event of a market downturn or economic crisis.
The report found that the most vulnerable banks are concentrated in the Midwest and Southeast. These regions are home to many small- and medium-sized banks, which are more vulnerable to liquidity issues due to their smaller size and lack of access to capital markets.
The Fitch report noted that the potential for widespread banking failures is “concerning,” but cautioned that the situation is not likely to reach the levels of the 2008 financial crisis. However, it said that the potential for a “significant number of banks” to fail is real and that regulators should be prepared to take action.
The report also noted that the banking sector has become increasingly reliant on short-term funding sources, which can be quickly withdrawn in the event of a liquidity crisis. This could lead to a rapid decline in the sector's ability to provide credit and liquidity to businesses, which could have a damaging effect on the economy.
The Fitch report comes as banks around the country have been struggling with the impact of the pandemic on their balance sheets. Banks have seen an increase in loan defaults, while deposit outflows have left many banks with limited liquidity.
The report urged banks to take steps to bolster their liquidity and reduce their reliance on short-term funding sources. It also urged regulators to consider implementing more stringent rules for banks that are heavily reliant on these sources.
The findings of the Fitch report underscore the need for regulators to remain vigilant in monitoring the banking sector. With nearly 200 banks at risk of suffering the same fate as Silicon Valley Bank, it is clear that regulators must act quickly to protect the financial system from a potential crisis.