A new study shows that 186 American banks could fail if half of their depositors suddenly withdrew their funds, depending on market conditions. The researchers formulated a speculative scenario in which each bank experienced a run, and concluded that the FDIC would run out of money.
The study was published shortly after the collapse of SVB, the worst American financial institution failure since 2008.
The economists wrote that these banks are at a potential risk of a run if there is no government intervention or recapitalization.
Nearly 190 banks are at risk of impairment to insured depositors, with potentially $300 billion of insured deposits at risk, according to the abstract. If uninsured deposit withdrawals cause small fire sales, substantially more banks are at risk. Many of SVB's assets were long-term government bonds. They were not worth as much as when SVB bought them, despite being a sound long-term investment. SVB invested too heavily in longer-term mortgage securities with more than 10 years to maturity.
SVB sold bonds at a loss of $1.8 billion in order to meet customer withdrawals. When SVB disclosed that loss, depositors panicked and withdrew their money.
Recent declines in bank asset values have exacerbated the fragility of the US banking system to uninsured depositor runs, according to these calculations. FOX Business reached out to FDIC for comment, but hasn't received a statement.