Uninsured Deposits will be a threaten to US banking system

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(Edited)

A week ago when SVB collapse caught so many attentions, and made investors to worrie if banking system will be a threatening to crypto sectors. FDIC take control of SVB and bailout its customers deposit posing deposit insurance limit of $250,000 and considered deposit greater than $250,000 uninsured, any customers that have such large was not covered by insurance and likely be at risk. However as failure of banks deepen and president Biden called for regulator to punish any banks that cash out before the collapse.

In the wake of turmoils cause by Silicon valley Bank's failure, many begin to compare the limit made by FDIC about deposit greater than $250,000 with the situation on ground. If uninsured deposit withdraw their money in the bank this will eventually lead to collapse of many banks in US

According to a report released by researchers from Columbia, Stanford, Northwestern, it been noticed that over 200 banks in U.S runs uninsured depositor and this made about $9 trillion of bank liabilities in US banking system. However, this will be a risk to the system if customers with deposit greater than $250,000 are now begin to removed their money from the bank. The research made it clear that bank with uninsured deposit will be a big threat to economy of the country and the banking system if not covered by insurance.

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Reason why bank will be at risk and Uninsured deposit will be a threatening to the banking system is the bank traditional ways of operating, they took customers deposit to invest in countries bonds for long-term. And sell the bonds to have gain for themselves. And According to the way US Fed Reserve monetary policy it will pose a collapse to many banks due to high rates and there will be a drawbacks in the market that hold assets for long term.

The decline in the market value of long-term assets by bank will make most of the bank's liabilities exceed assets values that will be a problem to meet obligations in shortterm.

I think that what's happening to SVB that makes customers lost faith when the bank declare it sell in losses. They use customers deposit to invest in US Treasury bonds more than 8 years and when Fed monetary policy begin to increase rate for long-term assets it affect the bank and customers start pulling their money which lead to the collapse. However, bank are suggest to have complete banking system that will reduce capital ratio to minimize losses level similar to those of less-regulated lenders.

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