US regional banks: challenges and opportunities

Hélyette Geman and Olivier Levyne

Journal of Risk

Abstract: The recent fight against inflation relied on interest rate hikes. This was an incentive for individuals to get their deposits back and created bank runs during spring 2023. The victims were US regional banks, such as Silicon Valley Bank. With total assets below US$250 billion, they were not regulated anymore after the abrogation of part of the Dodd–Frank Act by the Trump administration in 2017. In this paper, an empirical study based on 17 selected US regional banks provides meaningful results on the explanatory factors of the stock price evolution over the three-month period during which these banks faced the greatest challenges. The study also compares the solvency of US regional banks with that of European banks, which were not affected by bank runs during the same period. In that context, the paper summarizes the regulatory constraints for European banks before providing a review of the literature on past bank runs, in particular those analyzed by Bernanke, Diamond and Dybvig. Finally, the paper suggests tentative recommendations on tougher regulatory constraints for US banks and paves the way for their implementation.

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