Let's take a look at two factors that the two recent bank failures had in common - a high percentage of uninsured deposits, combined with a high level of Hold to Maturity Securities portfolio.

"Silicon Valley Bank and Signature Bank had some of the highest proportions of estimated uninsured domestic deposits across the entire industry," said S&P Global Market Intelligence's David Hayes in a report. ...

Silicon Valley Bank ranked second among banks with more than $50 billion in assets, with 93.9% of its total domestic deposits being uninsured, while Signature Bank ranked fourth, according to S&P Global Market Intelligence data as of year-end 2022," Hayes wrote.

Bank deposits in excess of $250,000 are much more volatile due to the fact that they are uninsured by the FDIC, and depositors are much more inclined to remove those deposits at the first sign of trouble. A large withdrawal of funds in a short period of time creates a liquidity problem.

Uninsured Deposits Are Only Half The Story

The high level of uninsured deposits is only half of the risk Silicon Valley Bank faced. The other factor was the bank's high level of securities being held all the way to maturity compared with total deposits. This reliance on long-term investments made it difficult for Silicon Valley Bank to sell securities and raise capital fast enough (without in-curing a portfolio loss) to meet the swelling withdrawals from depositors.

"When compared to Silicon Valley Bank and Signature Bank, the trio (of Bank of New York Mellon, State Street and Northern Trust) had much lower ratios of total loans plus held-to-maturity, or HTM, securities to total deposits," Hayes said.

For instance, Bank of New York Mellon's loans and hold-to-maturity securities are only 31.2% of total deposits. And that percentage is only 40.1% and 54.5% at State Street and Northern Trust, respectively. Compare that with the nosebleed levels of 94.4% and 93.3% at Silicon Valley Bank and Signature Bank, respectively.

MY COMMENT: These two very significant factors were apparently not flagged by Audit giant KPMG who two weeks prior, gave the bank a clean bill of health.


https://finance.yahoo.com/m/426f90e9-4b8a-3275-9bec-4a9b0bc51279/report-10-banks-are-most.html

https://www.zerohedge.com/markets/top-audit-firm-defends-giving-clean-bill-health-svb-signature-bank-weeks-failure