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The aftermath of the collapse of Silicon Valley Bank last week has left bankers and investors worried that one of the industry’s main building blocks – deposits – may be disappearing. Typically, deposit accounts are insured for up to $250,000 by the Federal Deposit Insurance Corporation, created during the Great Depression, which protects most people but leaves companies and wealthier individuals with larger accounts not fully insured. Events in recent days have shown that regional banks with large volumes of uninsured deposits, such as SVB and New York’s Signature Bank, which closed on Sunday, are at risk of deposit outflows. “The question for savers with account balances greater than $250,000 is how comfortable they feel in their bank and whether they are trying to diversify,” said Citi analyst Keith Horowitz. “We believe that regions with a less diversified and large uninsured deposit base are at risk of a run on deposits, but not at the rate of SVB, and they should have time to enter wholesale funding markets (such as FHLB) and raise cash levels,” — he added. in the system of the Federal Bank for Housing Loan. KRE 5D Mountain Shares of regional banks were under pressure again on Monday after falling last week. Investors will keep a close eye on how concentrated deposits are in these banks. In the case of SVB, the bank had mostly large deposits from companies and wealthy individuals. This can make the bank’s performance worse because small retail deposits are considered stickier than large uninsured accounts. “Unfortunately, one of the first consequences of the collapse of the SIVB is likely to be that it will cause a flight of uninsured deposits from smaller and less diverse banks to larger and more diverse ones. That being said, almost all banks are likely to want to increase their retail funding,” Oppenheimer analyst Chris Kotovsky said in a note to clients. Under normal circumstances, banks would be forced to sell securities in order to get cash to cover large withdrawals. And interest rates have risen sharply over the past year, meaning that even safe-haven assets owned by a bank but with lower interest rates than currently will be subject to losses when they are sold. That’s how SVB posted a $1.8 billion loss last week, which helped spark a bank run. This is where the new Bank Term Financing program from the Federal Reserve comes into play. The program, backed by $25 billion from the Treasury Department, will offer loans for up to one year on high-quality assets. These loans will be valued at face value of assets rather than market value, allowing banks to raise cash without taking into account losses. But even with this kind of support, customers can still get scared and pull their money out. “It sends a signal, provides liquidity, but will uninsured large depositors stay in smaller regional banks because of the announcement of SIVB and SBNY, or was the alarm over the last 48 hours enough to send money to larger regional and GSIB? JPMorgan analyst Kabir Kaprihan wrote in a note to clients, referring to global systemically important banks. “We expect the outflow of deposits from the regions to continue, but pace will be the key.” banks, this could lead to higher costs and lower profits in the coming years, according to Bank of America analyst Ebrahim Punawala, who lowered his price targets for more than 20 banks on Monday. high funding costs (as the industry becomes more aggressive about holding deposits) and potentially higher operating costs (greater compliance burden) as regulators are likely to reassess the existing capital/liquidity risk structure,” Punawala said. clients — Michael Bloom of CNBC
Credit: www.cnbc.com /
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