With growing concerns about unrealized losses on investment securities and commercial real estate loans, the risk of a depositor run on banks, similar to what crippled three banks last year, grows each day, according to an analysis from a finance expert at Florida Atlantic University.
A large percentage of banks with more than $1 billion in assets reported a ratio of uninsured deposits to total deposits of greater than 50% during the first quarter. Banks that report a ratio greater than 50% are considered to have an elevated risk of a run by uninsured depositors.
Of 1,028 banks with more than $1 billion in assets, 94 had a ratio of 50% or higher, according to the Liquidity Risk from Exposures to Uninsured Deposits index. About seven of 33 banks that had more than $100 billion in assets are above that threshold. Topping the list of banks with a 100% ratio of uninsured deposits was The Bank of New York Mellon, followed by State Street Bank at 92.6%; Northern Trust at 73.9%; Citibank at 72.5%; HSBC Bank at 69.8%; J.P Morgan Chase at 51.7% and U.S. Bank at 50.4%.
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Of banks with more than $1 billion in assets, John Deere Financial reported a ratio of 100% followed by Deutsche Bank Trust Company at 97.3% and Sumitomo Mitsui Trust Bank at 92.1%.
"The first bank failure of the year, Republic First Bank in Pennsylvania, was number 87 on the previous quarter's list with a 51.5% ratio," said Rebel A. Cole, Ph.D., Lynn Eminent Scholar Chaired Professor of Finance in the College of Business at FAU. "All of the banks on this list are at a serious risk of a run by uninsured depositors should they exhibit any weakness from commercial real estate exposures or unrealized losses on securities."
Last year, the United States saw three of the four largest bank failures in recent history – Silicon Valley Bank, Signature Bank and First Republic Bank – brought on by rapid withdrawals of uninsured deposits in the wake of adverse news about bank exposure.
FAU calculates its liquidity risk index based on regulatory data that each bank with more than $1 billion in assets must report in quarterly filings.
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Kristen Smithberg
Kristen Smithberg is a Colorado-based freelance writer who covers commercial real estate, insurance, benefits and retirement topics for BenefitsPRO and other industry publications.
