Concerns have been raised that trillions of dollars worth of deposits accumulated in U.S. banks exceeding the deposit guarantee limit could act as a “brain pipe” for the financial crisis due to reduced spending during the COVID-19 crisis.
The Wall Street Journal (WSJ) reported on the 26th (local time) that U.S. households over-saved about $2.3 trillion between 2020 and 2021, and deposits exceeding the FDIC’s bank deposit insurance limit of $250,000 reached about $8.4 trillion at the end of last year. Excess savings refer to household disposable income that should be consumed and saved.
WSJ analyzed the FDIC report and said the amount increased by about 41% compared to the end of 2019. According to a paper published by economics professors at major U.S. universities such as Northwestern, more than 200 banks could be at risk of bankruptcy if half of the uninsured depositors withdraw money from banks. Analysts say mid-sized banks such as Silicon Valley Bank (SVB), which went bankrupt earlier this month, could suffer from a bank run (large-scale deposit withdrawal) and spread to a financial crisis.
Reuters also said, “As of now, few investors see SVB bankruptcy as a repetition of structural crises such as the 2008 global financial crisis, but if the U.S. or European regulators believe that they will not protect depositors, another bank run could occur.”
“The current problem for European banks and large U.S. banks is confidence, not capital,” said Felipe Villarroel, portfolio manager at Twentypo Asset Management. The move is aimed at restoring stability in this time of financial instability, not at the central bank’s groundless confidence, but at strengthening liquidity supply and guaranteeing deposits.
Meanwhile New York’s three major stock markets started higher on the 27th (local time) amid eased concerns over the financial crisis from the U.S. as First Citizens Bank acquired Silicon Valley Bank (SVB), which went bankrupt due to bank runs (large-scale deposit withdrawals).
According to Reuters, the Dow Jones Industrial Average rose 39.19 points (0.12%) to 32,276.72 at the beginning of the opening.
The Standard & Poor’s 500 Index rose 11.94 points (0.30%) to 3982.93, and the tech-heavy Nasdaq Composite Index rose 44.58 points (0.38%) to 11,868.54.
