While authorities insist that the failure of Silicon Valley Bank and the turbulence that has affected regional US banks such as the First Republic Bank are isolated cases of mismanagement, there are also those who argue that all that glitters is not gold. the coffers of US banks
In a study published last week ( Monetary tightening and US bank fragility in 2023 ), a group of academics led by Erica Jiang, from the University of Southern California, warns that the market value of the bank assets of US entities would be of about two trillion dollars (1.86 trillion euros) lower than what its accounting books suggest due to the rise in rates that has taken place in the last year.
“These losses, combined with a large part of uninsured deposits, can affect its stability. If only half of these depositors decide to withdraw their money, nearly 190 banks, with deposits valued at $300 billion, are at risk. And if a small fire is created, many more will be”, they maintain.
It is true that Treasury Secretary Janet Yellen and Federal Reserve Chairman Jerome Powell have asserted that the banking system is well capitalized, supervised and regulated. In fact, in three days there was an inflow of funds of $108 billion net, the largest cumulative inflow of funds in a week in the last three years in the US. But it is also difficult to know to what degree the banks used derivatives to cover the risk of rising interest rates, making the risks mentioned by the study possible.
“What happened suggests a manifest incompetence of the supervision of the bank and of the regulators,” comments Roberto Álvarez del Blanco, an essayist and university professor from Silicon Valley. “It should have been apparent to the Fed that banks with long-term assets and short liabilities that had not hedged interest rate risk would experience significant losses as rates rose. In addition, the Fed has or can obtain information about the banks’ assets and liabilities and the degree to which they were hedging that interest rate risk. So they knew, or should have known, which banks were most exposed to interest rate risk when they started to rise. If they can’t detect something as simple as Silicon Valley Bank’s problems, what else aren’t they seeing?” reasons this academic.
