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Is the worst of America’s local banks over?

M.ore man People are paying more attention to America’s local banks than ever before. However, it is difficult to know the state of the balance sheet. Recent data from the regulator, the Federal Financial Institutions Examination Council, provides a glimpse of that. Our analysis shows that multiple regional banks are struggling with volatile deposits, interest rate mismatches and high borrowings. The outlook is bleak, even if nothing is likely to collapse.

Let’s start with deposits. Before the March panic, savers were moving their money into high-yielding money market funds. Collapse of Silicon Valley Bank (SVB) that trend accelerated. Accounts with balances over the federal insurance limit of $250,000 fell nearly 5% across the banking system and more than 11% at midsize institutions. At California-based financial institution PacWest, total deposits fell 17% and uninsured deposits fell by more than half.

Many banks still have billions of dollars in unrealized losses. In total, US banks have more than $500 billion in such losses in their securities portfolios, according to data. Brokerage firm Charles Schwab, whose shares have fallen two-fifths this year, has more than $21 billion in paper losses through its bank subsidiary.when SVB It went bankrupt, with unrealized losses on securities reaching 100% of core capital (see graph).

U.S. bank borrowings reached $1.3 trillion in the most recent quarter, up more than 40% from the previous quarter. Borrowing increased by 26% among large institutions. It more than doubled for medium-sized companies. Schwab reported $39 billion in short-term advances from the Federal Home Loan Bank (fhlb), up from $12 billion in the last three months.Ohio-based financier KeyBank borrowed $19 billion in short term fhlb Loans increased from $11 billion. Such loans are made at today’s high interest rates. Banks that rely on them may survive the crisis. But they’re probably going to see their profits diminish.

For more expert analysis on the biggest stories in economics, finance and markets, sign up at money talk, a weekly subscriber-only newsletter. For more information on the turmoil plaguing financial markets and the global economy, visit center of depression.

https://www.economist.com/finance-and-economics/2023/05/11/are-americas-regional-banks-out-of-the-worst-of-it Is the worst of America’s local banks over?

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