“Over 2,000 U.S. Banks Are Insolvent” was the Telegraph’s headline last week on an article reporting on a study released April 30 by four financial economists at the Stanford Graduate School of Business. The potential insolvency rises from the loss in market value of nearly all banks in the U.S. banking system due to the Federal Reserve’s suddenly soaring interest rates; and the threat of banks having to sell those devalued assets if depositors run and have to be paid out. The mark-to-market loss of those assets is estimated variously at around $2 trillion or so—$750 billion lost from securities assets and $1-1.5 trillion from loans if they are sold off before maturity—out of about $23 trillion total book value of banking system assets; so, 10%.
“Let’s not pretend that this is just about Silicon Valley Bank and First Republic,” said one of the financial experts, Dr. Amit Seru. “A lot of the U.S. banking system is potentially insolvent.” The report says that 2,315 out of 4,800 American banks were currently (as of March) sitting on assets worth less than their liabilities (largely deposits).
