Fears over finances of almost 200 US banks

More US banks were on the verge of collapse this weekend as a leading US think tank raised fears about the financial strength of nearly 200 lenders.

Meanwhile, the Bank of England is preparing to raise the cost of borrowing for a 12th consecutive time as it tries to curb double-digit inflation. This follows further rate increases in the US and Europe.

Experts at the Hoover Institution think tank say the global rise in interest rates has sent banks fleeing and many of them have suffered huge losses on some of their investments.

Officials are also concerned about the speed of recent bank runs, fueled by social media. Three of the four largest bank failures in US history have occurred in the past two months.

First Republic was seized by officials last week and most of its business was sold to banking giant JP Morgan. The collapse followed the sudden demise of technology lender Silicon Valley Bank as well as Signature, a smaller bank.

The futures of three other regional banks — California’s PacWest, Arizona’s Western Alliance and Memphis-based First Horizon — are in the balance after their share prices fell, fueling hopes that the crisis was over, despite the rise on Friday, raised the head.

Savings are guaranteed up to £200,000 in the US – much higher than the £85,000 limit in the UK.

But uninsured American savers, fearful that their money is not safe, have withdrawn their money en masse as they seek higher yields elsewhere, sparking bank runs.

Hoover’s analysis found that if half of uninsured savers withdraw their money, 186 US banks with total assets of £240bn would be at ‘potential risk of impairment’. That means the banks in question would technically be in violation of regulators’ capital rules.

If they became insolvent, the US government would have to guarantee depositors’ money – leave the taxpayer on the hook – or find buyers for bankrupt banks, as happened recently.

“There are several potentially insolvent banks lurking in the system,” warned Amit Seru, a professor of finance at Stanford University and one of the authors of the Hoover report.

Although most bank runs have occurred in the US, there are fears that panic could ensue.

SVB’s UK arm collapsed after £3bn – 30 per cent of its deposit base – disappeared in a day before being bailed out by HSBC. That prompted Chancellor Jeremy Hunt to order an urgent review of the protection rules.

UK households withdrew a record £4.8 billion from banks and building societies in March following the implosion of the SVB.

“The survey shows that UK regulators are somewhat concerned that we have not completely escaped the risk of a crisis,” said Costas Milas, professor of finance at the University of Liverpool.

The Hoover report also estimates US banks are incurring losses of more than £1.6 trillion after the value of their loan portfolios fell by an average of 10 percent.

These investments include supposedly safe government bonds, the value of which has fallen over the past year due to rising interest rates.

Losses would be realized on these bonds if banks had to rush to sell them to repay depositors who demanded their money.

Traders expect the Bank of England to approve another quarter-point hike on Thursday, taking interest rates to 4.5 percent – ​​the highest level since the financial crisis 15 years ago.

The move will cause more pain for about 1.4 million homeowners moving off cheaper, fixed-rate mortgages this year.

It also means that a typical borrower with a standard variable rate will pay an additional £390 a year in interest on a £200,000 mortgage, according to financial experts Moneyfacts.

Another rate hike will also put more pressure on heavily indebted companies and households struggling with rising food and utility bills.

The consumer price index stands at 10.1 percent — well above the bank’s target of 2 percent. This year there is at least one more interest rate increase on the program, with a peak of 5 percent possible, according to market forecasts.

But further unrest in the banking sector could force the Bank to change course.

Milas added: “If there is a significant increase in financial stress, interest rates could be cut before the end of the year.”