In the past month, the banking sector both in the United States and around the globe has experienced a tumultuous period that threatened to escalate into a full-blown financial crisis.
Three key banks in the US – Silicon Valley Bank, Signature Bank, and Silvergate Capital – out of which two were regarded as integral players in the cryptocurrency industry, have failed and declared bankruptcy. Meanwhile, multinational investment giant Credit Suisse, headquartered in Switzerland, faced a crisis that culminated in its acquisition by UBS.
The failure of banks was not only due to increasing interest rates and the declining value of bonds but also other factors such as the insured value of deposits, a large number of uninsured deposits, panic among depositors, and the high value of bank investments in securities and bonds. All of these factors contributed to the banking crisis.
While FDIC and the US government covered all deposits in Silicon Valley Bank and Signature Bank, regardless of their insurance status, not all banks and depositors will have that same assurance. If a bank which is not considered “systemically important” fails, depositors with more than $250,000 in deposits may lose their money as the government or FDIC may not step in to bail them out. This fear has led many depositors to withdraw money from regional and small banks and move it to larger banks.
The question remains whether this will trigger another banking crisis. In this article, we will analyze which regional banks in the United States have a high probability of a crisis and are poised to fail after SVB
A brief of what happened in the United States
The banking crisis in the United States was caused by declining bond prices and the market value of bank capital reserves due to the Federal Reserve’s raising of interest rates. Many banks had invested their reserves in low-yielding U.S. Treasury securities, and as yields on new bonds increased, some banks sold their bonds at steep losses.
The crisis led to the failure of several banks, including Silvergate Bank, Silicon Valley Bank, and Signature Bank, with the latter two being the second and third-largest bank failures in U.S. history, respectively. The Federal Reserve, FDIC, and U.S. Treasury announced measures to ensure the honor of deposits and the creation of the Bank Term Funding Program to offer loans to eligible institutions.
Silvergate Bank chose to enter into voluntary liquidation when the issues within the bank became too big to manage. On the other hand, Silicon Valley Bank and Signature Bank had to be shut down by regulators due to the systemic risks posed by the operations of these financial institutions.
Regional banks in the US that are poised to fail after SVB
Associated Banc-Corp –
Associated Banc-Corp, a bank headquartered in Green Bay, Wisconsin, is considered to be one of the most at-risk regional banks that may soon be pushed into a crisis. The bank has total assets of around $39.35 billion and deposits of $29.68 billion as of December 2022.
However, more than 47.87% of the bank’s deposit accounts exceed the FDIC insurance threshold of $250,000, which means that these accounts would be uninsured in case of a bank failure.
Additionally, the bank’s liquid assets/deposit ratio is low at just 11.5%, indicating its vulnerability. Moreover, with a net customer loans/deposits ratio of 96.2%, the bank is heavily lending out large amounts of money, which could be risky in case of a banking crisis as it would be difficult to liquidate these loans.
Valley National Bank –
Valley National Bank, headquartered in New Jersey, is a regional bank with substantial assets of over $57.45 billion and deposits worth $47.78 billion. However, recent data suggests that the bank’s financial position may be cause for concern.
The bank’s leverage ratio, a crucial indicator of financial stability, stands at 8.2%, indicating a precarious situation. In addition, the bank has a significant amount of loans tied up in the commercial and real estate sectors, which could prove difficult to liquidate if necessary.
The bank’s liquid assets to deposit ratio of just 4.7% is low and concerning, revealing potential vulnerability. The bank is lending out a significant amount of money, as indicated by its net customer loans to deposits ratio of 97.6%. An alarming 80% of the bank’s total assets are in the form of net loans and leases, increasing the risk of default.
Another significant issue to note is that over half of the bank’s deposit accounts, 51.15%, exceed the FDIC insurance threshold of $250,000. This means that in the event of a bank failure, these accounts would be uninsured and at risk of significant loss.
Valley National Bank noted in an email to TechStory that only 33% of the bank’s total deposit accounts actually exceed the FDIC insurance threshold.
These findings raise significant concerns about the bank’s overall financial health, which should be closely monitored by investors and regulators alike.
Sandy Spring Bank –
Sandy Spring Bank, a community bank located in Olney, Maryland and owned by Sandy Spring Bancorp, Inc., primarily serves the Washington metropolitan area with a total asset base of $13 billion. However, a significant portion of the bank’s assets, 81.52%, is tied up in loans and leases. Of the bank’s total loans worth $11.4 billion, 60.6% are in commercial and real estate sectors, which could be problematic for liquidity.
The bank’s low liquidity asset to deposit ratio of 12.8% and high net customer loans per deposit place it at a disadvantageous position in the event of a liquidity crisis. Additionally, only 34.47% of deposits fall below the FDIC insurance threshold of $250,000, exposing the bank to potential bank runs if depositors become aware of their investment’s lack of security in the bank.
These indicators point to potential risks that the bank faces and should be a matter of concern for both the bank’s management and its stakeholders.
Huntington National Bank –
The Huntington National Bank, headquartered in Columbus, Ohio, is the 26th largest bank in the United States, operating more than 1,000 branches primarily in the Midwest region. With over $182 billion in assets, the bank has a significant amount of investments in securities, making it vulnerable to a potential bank run.
FDIC statistics reveal that 18.90% of the bank’s total assets consist of U.S. Government Securities. 19.44% of these securities are set to mature in five years or more. Additionally, over 58% ($106.5 billion) of the bank’s deposit accounts exceed the FDIC insurance threshold of $250,000, leaving them uninsured in case of a bank failure.
First Financial Bank –
First Financial Bank is a regional bank headquartered in Abilene, Texas, with total assets of 12.92 billion dollars and total deposits of $11.12 billion as of December 31, 2022. However, the bank’s heavy reliance on securities as assets makes it vulnerable to potential financial crises.
Securities account for 42.03% of the bank’s total assets, with U.S. Government Securities representing 24.09%, Securities Issued by States & Political Subdivisions making up 14.54%, and Other Domestic Debt Securities accounting for 3.37%.
A significant decline in the value of these securities and bond-related investments could have significant adverse effects on the bank’s asset position, which would increase the possibility of a liquidity crisis. Moreover, more than half of the bank’s deposit accounts, representing 6.6 billion dollars, exceed the FDIC insurance threshold of $250,000, leaving them uninsured in the event of a bank failure.
UMB Bank
UMB Bank, a regional bank headquartered in Kansas City, Missouri, and with branches across the Midwest, Southwest, and Western United States, has total assets of $38 billion and deposits totaling $32 billion, according to the FDIC. However, only 16% of deposits fall under the $250,000 FDIC insurance threshold, leaving 74.11% (equivalent to $28.36 billion) vulnerable to potential losses in the event of the bank’s failure. This could cause depositors to panic and withdraw their funds, seeking to deposit them elsewhere.
Approximately 33.64% of UMB Bank’s total assets are invested in securities, with 20.95% in U.S. government securities. Nearly 23% of the securities owned by UMB Financial Corporation, the holding company of UMB Bank, will mature in more than five years, indicating that sudden withdrawals without incurring losses may not be possible.
Tumbling deposits
According to the Federal Reserve’s latest H.8 report, deposits at US commercial banks were $17.3 trillion in the week ending March 22, down by $125.7 billion from the previous week and by $387.5 billion from February.
However, small banks experienced a $5.9 billion increase in deposits in the seven-day period ending March 22 after a $196.4 billion drop in the prior week. Large commercial banks saw a decline of $89.7 billion in deposits during the same week, dropping below pre-crisis levels.
The Federal Reserve also noted revisions to the data for the week ending March 15 due to the way FDIC bridge banks were incorporated in small bank data.
Regional Banks Matter
Although the 2008 financial crisis may seem like a thing of the past, its effects on the banking industry are still being felt in the present day. In March 2023, several major banks in the United States faced the threat of insolvency due to a liquidity crisis, prompting some analysts to warn of a potential repeat of the 2008 crisis. While the crisis was ultimately resolved through various interventions, the underlying causes of the crisis still persist.
The government will always bail out larger banks that are deemed “too big to fail,” along with their depositors. However, it’s crucial to also consider the concerns of depositors and shareholders of regional banks, who represent their communities.
Please note that most of the financial information provided in this article is as of 31/12/2022. It is important to keep in mind that financial data may change over time and readers are advised to refer to the latest available information before making any financial decisions.
