The Blubber

America’s banks are missing hundreds of billions of dollars, per the Economist.

They said: Over the past year those in commercial banks have sunk by half a trillion dollars, a drop of nearly 3%. This makes the financial system more fragile, since banks must shrink to repay their deposits.

They discuss the reverse repo facility as well, saying: Yet there is one obscure way in which money-market funds may suck deposits from the banking system: the Federal Reserve’s reverse-repo facility, which was introduced in 2013. The scheme was a seemingly innocuous change to the financial system’s plumbing that may, a decade later, be having a profoundly destabilising impact on banks.

Read the full article: https://www.economist.com/finance-and-economics/2023/03/21/americas-banks-are-missing-hundreds-of-billions-of-dollars

Recently, economists said they found 186 banks that may be prone to similar risks such as Silicon Valley Bank, per WSJ.

Read the abstract of the paper references:

The U.S. banking system’s market value of assets is $2 trillion lower than suggested by their book value of assets accounting for loan portfolios held to maturity. Marked-to-market bank assets have declined by an average of 10% across all the banks, with the bottom 5th percentile experiencing a decline of 20%. We illustrate that uninsured leverage (i.e., Uninsured Debt/Assets) is the key to understanding whether these losses would lead to some banks in the U.S. becoming insolvent-- unlike insured depositors, uninsured depositors stand to lose a part of their deposits if the bank fails, potentially giving them incentives to run. A case study of the recently failed Silicon Valley Bank (SVB) is illustrative.

Read more: https://unusualwhales.com/news/economists-said-they-found-186-banks-that-may-be-prone-to-similar-risks-such-as-silicon-valley-bank