Dorothy Neufeld and Sabrina Lam have compiled a list of the 30 banks with the most uninsured deposits on Visual Capital. At the top of the list are several banks critical to the financial system.
This figure is three times the market value of Apple and equates to around 30% of the US GDP. Deposits above $250 000 are uninsured – this is the limit insured by the FDIC. Uninsured deposits account for 40 percent of all deposits. Before the 2008 global financial crisis, insured deposits were $100 000.
In the wake of the collapse of Silicon Valley Bank (SVB), we look at the 30 banks with the highest share of uninsured deposits. The list is compiled using data from S&P Global.
The image above shows a list of the banks with the most uninsured deposits. Banks with at least $50 billion in assets at the end of 2022 are included for comparison.
Custodians are critical to the financial system’s infrastructure – they hold, settle, and account for funds and perform other functions as required by the custody agreement. Bank of New York (BNY) and State Street Bank have the highest uninsured deposits. These are also the two largest US depository banks.
Both BNY Mellon and State Street are considered ‘systemically important’ banks.
How are these banks different from the SVB? Their loans and held-to-market securities are much smaller than their total deposits. Held-to-maturity securities are, for example, bonds held to maturity. These loans accounted for 94% of SVB’s deposits, compared with 31% and 40% for BNY Mellon and State Street.
Held-to-maturity securities carry much higher risks for banks. Many of these securities have depreciated following the rapid rise in interest rates. Therefore, the increase in interest rates entails many risks for the banks holding these securities. The value of US long-term government bonds fell by around 30 percent in 2022. A bank must absorb heavy losses if it sells these assets before maturity.
There are 11 banks whose loans and held-to-maturity securities account for more than 90 percent of total deposits.
To avoid significant consequences, regulators took extraordinary measures. All the deposits of SVB and Signature Bank were guaranteed just a few days after the collapse of the banks.
The Federal Reserve also set up an emergency lending facility for banks called the Bank Term Funding Program (BTFP). It provides funding to banks whose depositors have started to withdraw money from the bank. It also deals with the interest rate risk that banks face.
So far, the agency has borrowed $50 billion, with $11.9 billion in loans issued in the first week (the Federal Reserve updates these numbers weekly). That has caused the Federal Reserve’s balance sheet to grow again, despite the decision to start reducing it in 2022.
What does it mean for the US banking system, depositors, and the financial system in general?
On the one hand, the Federal Reserve did not have a choice – banks needed to be bailed out. Charlie Munger, a long-time business partner of the world’s best-known investor Warren Buffett, said:
“In the current world, the government had no choice but to guarantee all deposits. Otherwise, you would have seen the biggest bank run in our lifetime.”
The bigger problem is that it introduces more risks into the system. The excessively high-interest rate period has made banks more sensitive to rising interest rates. At the same time, it reduced the price paid for taking on risk. If market participants expect the Federal Reserve to always come to the rescue, they will no longer be so cautious in their decision-making.
Now the Federal Reserve says steps may be taken to protect uninsured deposits. How fast the volume of loans issued by BFTP will increase over the next few months is anyone’s guess.