Per a recent study highlighted by Connect CRE, 183 banks in the United States are at risk of failure if only half of their uninsured depositors decide to withdraw their funds. The fragility of the banking system has been increased due to recent declines in bank asset values, making them vulnerable to depositor runs. Regional banks, in particular, have been affected by the Federal Reserve's interest rate hikes aimed at combating inflation. These rate hikes have eroded the value of bank assets such as government bonds and mortgage-backed securities. Bonds, which typically offer fixed interest rates, become less attractive as interest rates rise. During the pandemic, many banks increased their bond holdings as loan demand and yields were weak. While some banks may only experience unrealized losses on paper, others may face actual losses if they need to sell securities for liquidity. The article also highlights that a run on these banks could pose a risk to insured depositors as the FDIC's deposit insurance fund starts incurring losses.
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