186 US  Banks Well-Positioned For Collapse, SVB Analysis Reveals

186 US  Banks Well-Positioned For Collapse, SVB Analysis Reveals

written by John Murphy | March 18, 2023

A new analysis by Silicon Valley Bank (SVB) suggests that over 186 banks in the United States are well-positioned for a possible collapse. The SVB Analysis Reveals a bleak outlook for the banking industry, which has been hit hard by the COVID-19 pandemic and the ensuing economic downturn.

The 186 banks identified by SVB are small- to mid-sized institutions that have shown weak financial performance and possess high levels of non-performing assets. These banks are also situated in regions where their economies have been impacted heavily by the pandemic.

Furthermore, SVB’s analysis suggests that these banks are facing a liquidity crunch, with the majority having low levels of liquidity and struggling to make ends meet. The study warns that this could trigger a cascade of failures that may lead to an even more severe economic downturn in the US.

SVB’s analysis reveals that these struggling banks have a combined asset size of $870 billion and hold approximately $76 billion in non-performing loans.

The study further notes that many of these banks have a high reliance on real estate and commercial lending, which have been severely impacted by the pandemic.

The study warns that these banks may face the consequences of not adapting to the changing market conditions and customer needs. Banks that need to prepare to pivot their business models to accommodate the trends of this new economy could find themselves struggling to remain competitive and relevant.

With the possibility of a second wave of the pandemic, the economic picture for these banks may become even bleaker. The study cites the need for the Federal Reserve to take immediate action to prevent the possible collapse of these banks and to provide support to aid in their recovery.

SVB recommends that the Federal Reserve intervene by providing supportive measures, such as low-cost liquidity facilities and targeted regulatory relief. Additionally, measures such as loan forgiveness, mortgage forbearance, and direct government aid could be instrumental in stabilizing these banks and preventing an economic collapse.

The report also suggests mergers and acquisitions could be another solution for smaller banks to recover. Consolidation of these weaker banks with stronger institutions could help preserve their assets and mitigate the risk of systemic failure.

The findings of SVB’s analysis provide a grim outlook for many banks in the US. Without immediate intervention from the Federal Reserve, hundreds of small- to mid-sized institutions may face a high risk of failure, potentially leading to an even more significant economic downturn.

As the banking industry navigates the treacherous waters brought on by the pandemic, institutions need to remain agile and adaptable to meet the rapidly changing needs of their customers.

Banks that evolve and innovate slowly may face tremendous financial difficulties and a potentially dire future.   

Rising interest rates, which have slashed the market value of the U.S. banking system by as much as $2 trillion, combined with the large proportion of uninsured deposits in some U.S. banks, threaten banking stability.  

A perfect mix of losses, uninsured leverage, and a large loan portfolio led to the failure of Silicon Valley Bank (SVB), among others. Comparing SVB’s situation with other players reveals that almost 190 banks operating in the US are at risk of the crackdown.