With many banks having exposure to losses from commercial real estate and unrealized securities losses, more banks are at an increased risk of having a liquidity crisis caused from withdrawals by large uninsured depositors, according to an analysis from a finance expert at Florida Atlantic University
By amber bonefont | 7/15/2024
With many banks having exposure to losses from commercial real estate and unrealized securities losses, more banks are at an increased risk of having a liquidity crisis caused from withdrawals by large uninsured depositors, according to an analysis from a finance expert at Florida Atlantic University.
Based on first quarter 2024 regulatory data, 94 out of 1,028 banks with more than $1 billion in assets reported a 50% or higher ratio of uninsured deposits to total deposits, according to the Liquidity Risk from Exposures to Uninsured Deposits index. Seven of the 33 banks with more than $100 billion in assets are above the threshold. The Bank of New York Mellon has a 100% ratio of uninsured deposits, followed by State Street Bank, 92.6%; Northern Trust, 73.9%; Citibank, 72.5%; HSBC Bank, 69.8%; J.P Morgan Chase, 51.7% and U.S. Bank, 50.4%.
“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. “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.”
The index, a part of the Banking Initiative at Florida Atlantic University, tracks 1,028 with more than $1 billion in total assets to calculate the ratio of uninsured deposits to total deposits using regulatory data. Banks that report a ratio greater than 50% are at an elevated risk of a run by uninsured depositors.
Three of the four largest bank failures in recent U.S. history occurred in 2023. They were precipitated by the rapid withdrawals of uninsured deposits following adverse news about the banks’ risks to exposure. With growing concerns about unrealized losses on investment securities and commercial real estate loans, the risk of yet another depositor run on banks grows each day.
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FAQs
Banks that report a ratio greater than 50% are at an elevated risk of a run by uninsured depositors. Three of the four largest bank failures in recent U.S. history occurred in 2023. They were precipitated by the rapid withdrawals of uninsured deposits following adverse news about the banks' risks to exposure.
Which banks are at risk of failing? ›
The banks of greatest concern are Flagstar Bank and Zion Bancorporation, according to the screener. Flagstar Bank reported $113 billion in assets with a total CRE of $51 billion. The bank, however, only had $9.3 billion in total equity, making its total CRE exposure 553% of its total equity.
What is the highest risk for banks? ›
Credit risk is the biggest risk for banks. It occurs when borrowers or counterparties fail to meet contractual obligations. An example is when borrowers default on a principal or interest payment of a loan. Defaults can occur on mortgages, credit cards, and fixed income securities.
What banks are too big to fail financial institutions? ›
"Too big to fail" (TBTF) is a theory in banking and finance that asserts that certain corporations, particularly financial institutions, are so large and so interconnected that their failure would be disastrous to the greater economic system, and therefore should be supported by government when they face potential ...
Why are banks vulnerable to bank runs? ›
First, a bank can become fundamentally insolvent if asset values are less than the value of its liabilities. Second, uninsured depositors may run, causing the bank to fail. This is especially the case, because systemwide uninsured depositors make up about half of bank deposits (Egan et al.
Which banks are in trouble in 2024? ›
There has only been one bank failure so far in 2024. Republic First Bank (Philadelphia), which did business as Republic Bank, failed April 26. That was the first Federal Deposit Insurance Corp. (FDIC) bank to fail since Citizens Bank of Sac City, Iowa failed in November 2023.
Which is the safest bank? ›
Summary: Safest Banks In The U.S. Of September 2024
| Bank | Forbes Advisor Rating | Learn More |
|---|
| Chase Bank | 5.0 | Learn More Read Our Full Review |
| Bank of America | 4.2 | |
| Wells Fargo Bank | 4.0 | Learn More Read Our Full Review |
| Citi® | 4.0 | |
1 more rowAug 30, 2024
The Bank of New York Mellon has a 100% ratio of uninsured deposits, followed by State Street Bank, 92.6%; Northern Trust, 73.9%; Citibank, 72.5%; HSBC Bank, 69.8%; J.P Morgan Chase, 51.7% and U.S. Bank, 50.4%.
Which bank is least likely to fail? ›
The top 10 safest banks in the U.S.
| Bank | The Ascent's Rating | FDIC Insured? |
|---|
| Capital One | 4.50 | Yes |
| American Express® National Bank | 4.50 | Yes |
| Quontic | 4.50 | Yes |
| Chase | 4.50 | Yes |
6 more rowsAug 21, 2024
America's Worst Banks at a Glance
| Bank | Total complaints | Percentage of unresolved complaints |
|---|
| Wells Fargo | 117,173 | 3.25% |
| Citibank | 85,462 | 0.43% |
| Bank of America | 128,404 | 3.10% |
| Capital One | 83,945 | 0.10% |
6 more rowsIf your bank is federally insured
- Stocks.
- Bonds.
- Mutual funds.
- Annuities.
- Life insurance policies.
- Safe deposit boxes.
- US Treasury bills, bonds or notes.
- Municipal securities.
Bank of America has over 2,000 one-star reviews on the Consumer Affairs website. According to the Consumer Finance Protection Bureau (CFPB), Bank of America received over 13,000 formal complaints in 2022 alone. The bank's signature products are some of the most-mentioned in complaints.
Are credit unions safer than banks? ›
One question that often arises is, "Are Credit Unions Safer than Banks?" If you're looking for a short answer, you'll be happy to know that we're not making you read the whole post: Credit Unions and banks are roughly identical in safety because deposits at both are insured by the Federal government to $250,000.
Can banks seize your money if the economy fails? ›
Your money is safe in a bank, even during an economic decline like a recession. Up to $250,000 per depositor, per account ownership category, is protected by the FDIC or NCUA at a federally insured financial institution.
Why are people withdrawing money from banks? ›
“Typically, the biggest reasons people withdraw their savings are to cover a bill, to make a purchase, home repairs, for vacations or for birthdays and holidays such as Christmas,” said Arielle Torres, an assistant branch manager at Addition Financial Credit Union.
Can a bank stop you from withdrawing money? ›
Generally, bank customers can take as much money out of their bank accounts as they want -- it's their money. But there's one big rule you need to know: according to the Bank Secrecy Act (BSA), bank customers are limited to a certain amount of cash withdrawals per day.
How many banks are on the verge of collapse? ›
186 Banks Are in Danger of Failing? A report posted on the Social Science Research Network found that 186 banks in the United States are at risk of failure or collapse due to rising interest rates and a high proportion of uninsured deposits.
What three banks are too big to fail? ›
RBI continues to classify SBI, ICICI Bank and HDFC Bank in the category of D-SIBs. But, what are D-SIBs? These are the banks which are so important for the country's economy that the government cannot afford their collapse. Hence, D-SIBs are thought of as “Too Big to Fail” (TBTF) organisations.
