The US Banking Sector since the March 2023 Turmoil: Navigating the Aftermath

Global Financial Stability Notes, March 5, 2024

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The US Banking Sector since the March 2023 Turmoil: Navigating the Aftermath

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Bibliographic details

• Authors: Tobias Adrian, Nassira Abbas, Silvia Ramirez, Gonzalo Fernandez Dionis
• Published: March 5, 2024
• Series: Global Financial Stability Notes
• DOI: https://doi.org/10.5089/9798400267437.065

Summary

• In March 2023, the US banking sector turmoil led to the rapid collapse of Silicon Valley Bank (SVB), the 16th largest bank in the country, followed by Signature Bank (SBNY) and First Republic Bank (FRB), representing the largest bank failures after Washington Mutual Bank in 2008.
• The failures were triggered by sizable deposit outflows and raised concerns about other US banks—particularly those of similar or smaller size—with large amounts of uninsured deposits, unrealized losses, and commercial real estate exposures.
• The episode highlights the interaction between tighter monetary and financial conditions and the buildup of vulnerabilities, amplified by ineffective interest, liquidity, and credit risk management practices at some banks.
• The note analyzes the main attributes of the affected banks to assess the extent to which vulnerabilities persist in a weak tail of banks and provides a prospective assessment of medium-term risks to financial stability posed by this weak tail.

Main attributes and vulnerabilities examined

• Bank runs and deposit outflows as an immediate trigger of failures.
• Large shares of uninsured deposits among affected banks.
• Presence of unrealized losses in bank portfolios.
• Commercial real estate exposures as a concentration risk.
• Weak interest, liquidity, and credit risk management practices at some banks.

Medium-term risks to financial stability

• Persistence of a "weak tail" of banks with the attributes listed above could pose medium-term financial stability risks.
• Interaction of tighter monetary and financial conditions with preexisting vulnerabilities may amplify risks.

Subjects and keywords

• Subjects: Asset and liability management, Commercial banks, Deposit insurance, Distressed institutions, Financial crises, Financial institutions, Financial sector policy and analysis, Financial sector stability, Liquidity
• Keywords: 2023 banking turmoil, bank equity Index, bank runs, bank Term funding program, Commercial banks, compounds financial conditions, Deposit insurance, deposit outflow, Distressed institutions, Financial sector stability, First Republic Bank, Global, IMF Library, Liquidity, regional banks, Signature Bank, Silicon Valley Bank, US banking sector

The US Banking Sector since the March 2023 Turmoil: Navigating the Aftermath, Global Financial Stability Notes No 2024/001.

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