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By Ryan King via Washington Examiner<\/a><\/p>\n<\/div>\n

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F<\/span>allout from the\u00a0Silicon Valley Bank collapse<\/a>\u00a0has directed attention to a $620 billion ticking time bomb in the\u00a0banking system<\/a>\u00a0that has the potential to spell doom for the financial system.<\/p>\n

SVB’s meltdown was partly caused by a chasm between its assets and what they were worth in the market. Eventually, SVB sold some of those assets,\u00a0spooking investors<\/a>\u00a0and triggering a run on the bank. But SVB isn’t alone, as banks across the United States were sitting on $620 billion in unrealized potential losses\u00a0at the end of last year, per\u00a0the Federal Deposit Insurance Corporation<\/a>.<\/p>\n

That hole illustrates why authorities at the Federal Reserve, the Treasury Department, and the FDIC were so eager to stave off contagion or panic spread from SVB’s demise across the banking sector.<\/p>\n

The reason for this predicament is that banks compiled a plethora of bonds and treasuries during times when interest rates were hovering near zero. But now, the Federal Reserve has begun jacking up rates in an effort to combat inflation, which has caused many of those assets to plunge in value.<\/p>\n

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\"investments<\/picture>\n
(Washington Examiner)<\/em><\/p>\n<\/div>\n<\/div>\n<\/figure>\n<\/div>\n<\/div>\n

This is because higher interest rates mean that new bonds accrue higher rates of returns for investors. As a result, older bonds have comparatively lower rates of return, rendering them less desirable for investors and therefore triggering a plunge in the value of older assets.<\/p>\n

A consequence of the $620 billion unrealized potential loss phenomenon is that banks may quickly find themselves with less cash on hand than their books might have suggested.<\/p>\n

Taking note of the liquidity needs of banks, the Federal Reserve announced plans to offer banks a facility to help them meet depositor withdrawals Sunday. The government has also moved to backstop depositors at SVB in the hope of curtailing panic from its demise from rippling across the industry.<\/p>\n

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$620 billion of unrealized losses, overall equity 2.2 trillion. If a run on the banks would happen it could be fatal even for several large US banks like JP Morgan and Citi. This crisis isn\u2019t over. The US Treasury simply bought some time.\u00a0pic.twitter.com\/2xNvfIrN9b<\/a><\/p>\n

\u2014 Kim Dotcom (@KimDotcom)\u00a0March 13, 2023<\/a><\/p><\/blockquote>\n<\/div>\n<\/div>\n

The FDIC guarantees deposits up to $250,000, but many SVB deposits eclipsed that threshold. The government announced plans on Sunday to back those deposits of over $250,000 as well.<\/p>\n

SVB caused panic among investors last week when it revealed that it sold treasuries at a loss, inciting a run on the bank. On Thursday, customers withdrew $42 billion in a single day. For comparison, Washington Mutual “lost $16 billion dollars over 10 days” during the financial crisis of 2008, according to Sen. Mark Warner (D-VA).<\/p>\n

The bank was the 16th largest federally insured bank and was taken over by regulators Friday after announcing it needed to raise over $2.2 billion to stay solvent.<\/p>\n

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More From The Real Estate Guys<\/i>\u2026<\/h5>\n<\/div>\n