aswathdamodaran.blogspot.com · 2023-05-05 · 1126d

Breach of Trust: Decoding the Banking Crisis

This article analyzes the 2023 U.S. banking crisis (SVB, Signature Bank, First Republic) through the lens of deposit stickiness, interest rate duration mismatches, and regulatory capital adequacy. The author argues that unlike 2008, this crisis stems from duration mismatches and deposit sensitivity rather than systemic risk-seeking, and predicts consolidation, accounting rule changes, and regulatory reforms focused on deposit stickiness and interest rate risk.

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Metrics in this report

FDIC Deposit Insurance Cap

250000USD

Per depositor protection ceiling; deposits exceeding this amount are uninsured and subject to run risk

First Republic Bank Deposit Decline

41percent

Q1 2023 deposit outflow, triggering forced liquidation of securities at losses

Investment-Grade Corporate Bond (Baa) Price Decline

27percent

2022 decline due to rising interest rates

S&P 500 Year-to-Date Return

6.5percent

As of May 5, 2023, indicating market resilience despite banking crisis

S&P Regional Bank Index Year-to-Date Decline

35percent

As of May 5, 2023, indicating concentrated damage in regional banking segment

SVB Investment Securities as Percentage of Assets

55-60percent

Extraordinary concentration in treasury bonds and mortgage-backed securities, creating duration mismatch exposure

Signature Bank Uninsured Deposits

90percent

Deposits exceeding $250,000 FDIC insurance cap, creating acute run risk

Ten-Year Treasury Bond Price Decline

19percent

2022 decline resulting from interest rate increase from 1.51% to 3.88%

U.S. Banking System Consolidation

4844number of banks

2022 count, down from 14,496 in 1984