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Monetary Tightening and U.S. Bank Fragility in 2023: Mark-to-Market Losses and Uninsured Depositor Runs?

SSRN Electronic Journal
2023
  • 21
    Citations
  • 485,074
    Usage
  • 100
    Captures
  • 280
    Mentions
  • 567
    Social Media
Metric Options:   Counts1 Year3 Year

Metrics Details

  • Citations
    21
    • Citation Indexes
      21
  • Usage
    485,074
    • Abstract Views
      344,733
    • Downloads
      140,341
  • Captures
    100
    • Readers
      92
    • Exports-Saves
      8
      • SSRN
        8
  • Mentions
    280
    • News Mentions
      267
      • News
        267
    • Blog Mentions
      13
      • Blog
        13
  • Social Media
    567
    • Shares, Likes & Comments
      567
      • Facebook
        567
  • Ratings

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Article Description

We develop a conceptual framework and an empirical methodology to analyze the effect of rising interest rates on the value of U.S. bank assets and bank stability. We mark-to-market the value of banks' assets due to interest rate increases from Q1 2022 to Q1 2023, revealing an average decline of 10%, totaling about $2 trillion in aggregate. We present a model illustrating how asset value declines due to higher rates can lead to self-fulfilling solvency runs even when banks' assets are fully liquid. Banks with high asset losses, low capital, and, critically, high uninsured leverage are most fragile. A case study of the failed Silicon Valley Bank confirms the model insights. Our empirical measures of bank fragility suggest that, in the absence of regulatory intervention, many U.S. banks would have been at risk of self-fulfilling solvency runs.

Bibliographic Details

Erica Xuewei Jiang; Gregor Matvos; Tomasz Piskorski; Amit Seru

Elsevier BV

Monetary Tightening; Uninsured Depositors; Solvency Runs; Uninsured Leverage; Silicon Valley Bank; First Republic Bank

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