MJP –
A new analysis indicates that 94 US banks are currently facing a significant level of risk due to the large number of uninsured depositors held by industry titans.
According to research out of Florida Atlantic University, seven US financial behemoths with billion-dollar assets have disclosed an uninsured deposit percentage of 50% or greater.
Some large banks have a high proportion of uninsured deposits, according to a recent index that measures the risk of banks losing money as a result of uninsured deposits.
Ranked from highest to lowest in terms of percentage, the following financial institutions are included: BNY Mellon (100%), State Street Bank (92.6%), Northern Trust (73.9%), Citibank (72.5%), HSBC Bank (69.8%), JPMorgan Chase (51.7%), and U.S. Bank (50.4%).
Since the FDIC only insures up to $250,000 per depositor per bank, a significant number of depositors may lose their money if these institutions encounter financial troubles.
Image – Business Today
Uninsured depositors are more prone to swiftly remove their money if they perceive any danger to the stability of the bank, making these institutions more susceptible to liquidity problems, according to finance professor Rebel A. Cole.
Republic First Bank’s recent demise served as an example of this; the bank had a 51.5% uninsured deposit ratio.
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The deposit run that followed the bank’s bankruptcy ultimately caused it to close its doors.
If any of the listed banks encounter financial weakness—for example, losses on investments in commercial real estate or unrealized losses on securities—Cole warns that a similar run could befall them all.
No assurance exists that the Federal Deposit Insurance Corporation (FDIC), the Federal Reserve System, or the Treasury Department will repeat their intervention that safeguarded depositors from the Silicon Valley Bank, Signature Bank, and First Republic Bank failures last year.
It appears the FDIC is determined to keep banking system disruptions to a minimum, given how quickly they arranged for Fulton Bank to take over all accounts in the Republic First Bank case.
But the fact that these big banks have such a high proportion of uninsured deposits makes one wonder how the financial system will hold up in the future.
