Monetary Tightening and U.S. Bank Fragility in 2023: Mark-to-Market Losses and Uninsured Depositor Runs?

Erica Xuewei Jiang, Gregor Matvos, Tomasz Piskorski and Amit Seru

No 31048, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We develop a conceptual framework and an empirical methodology to analyze the effect of rising interest rates on the value of U.S. bank assets and bank stability. We mark-to-market the value of banks’ assets due to interest rate increases from Q1 2022 to Q1 2023, revealing an average decline of 10%, totaling about $2 trillion in aggregate. We present a model illustrating how asset value declines due to higher rates can lead to self-fulfilling solvency runs even when banks’ assets are fully liquid. Banks with high asset losses, low capital, and, critically, high uninsured leverage are most fragile. A case study of the failed Silicon Valley Bank confirms the model insights. Our empirical measures of bank fragility suggest that, in the absence of regulatory intervention, many U.S. banks would have been at risk of self-fulfilling solvency runs.

JEL-codes: G2 L5 (search for similar items in EconPapers)
Date: 2023-03
New Economics Papers: this item is included in nep-ban, nep-cba, nep-fdg and nep-mon
Note: CF EFG ME
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Citations: View citations in EconPapers (14)

Published as Erica Xuewei Jiang & Gregor Matvos & Tomasz Piskorski & Amit Seru, 2024. "Monetary tightening and U.S. bank fragility in 2023: Mark-to-market losses and uninsured depositor runs?," Journal of Financial Economics, vol 159.

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Journal Article: Monetary tightening and U.S. bank fragility in 2023: Mark-to-market losses and uninsured depositor runs? (2024)
Working Paper: Monetary Tightening and U.S. Bank Fragility in 2023: Mark-to-Market Losses and Uninsured Depositor Runs? (2023)
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