SVB and Beyond: The Banking Stress of 2023

261 Pages Posted: 7 Aug 2023 Last revised: 9 Aug 2023

See all articles by Viral V. Acharya

Viral V. Acharya

New York University (NYU) - Leonard N. Stern School of Business; New York University (NYU) - Department of Finance; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI); National Bureau of Economic Research (NBER)

Matthew P. Richardson

Department of Finance, Leonard N. Stern School of Business, New York University

Kermit L. Schoenholtz

New York University - Stern School of Business - Department of Economics

Bruce Tuckman

New York University (NYU) - Leonard N. Stern School of Business

Richard Berner

Leonard N. Stern School of Business, NYU

Stephen G. Cecchetti

National Bureau of Economic Research (NBER); Brandeis International Business School; Centre for Economic Policy Research (CEPR); European Systemic Risk Board

Sehwa Kim

Columbia University - Columbia Business School

Seil Kim

Baruch College, City University of New York

Thomas Philippon

New York University (NYU) - Department of Finance; National Bureau of Economic Research (NBER)

Stephen G. Ryan

New York University (NYU) - Leonard N. Stern School of Business

Alexi Savov

New York University (NYU) - Department of Finance; National Bureau of Economic Research (NBER)

Philipp Schnabl

New York University (NYU) - Department of Finance; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Lawrence J. White

Stern School of Business, New York University; New York University (NYU) - Leonard N. Stern School of Business, Department of Economics

Date Written: July 17, 2023

Abstract

Starting in March 2023, depositor runs quickly led to the failures of Silicon Valley Bank (SVB), Signature Bank, and First Republic Bank. In the wake of higher interest rates, uninsured depositors of these banks had lost confidence in their business model of taking in deposits and investing the proceeds in long-term securities to generate a term-spread carry. Many other banks, some smaller and some bigger replicas of these three banks, experienced slower depositor runs or are still experiencing deposit outflows.

Will depositor outflows from smaller and regional banks stop anytime soon? Is there regulatory and supervisory capacity to deal with a large number of bank failures were they to materialize? Will regulators respond with alacrity and raise confidence in bank solvency and liquidity, or will they kick the can down the road? Can banks deal with the added complication in the form of a tsunami of impending commercial real estate losses, perhaps even auto loan and credit card delinquencies, as a likely economic recession finally arrives? Or will there be a credit crunch, some bad zombie loans, and a disappointing recovery?

This book, with interdisciplinary contributions from several faculty members at the New York University Stern School of Business (NYU Stern) and several non-NYU colleagues, attempts to provide a balanced diagnosis and organizing framework to understand the banking stress of 2023 (Chapters 1-5), as well as a collection of policy proposals to ensure financial resilience in its wake (Chapters 6-10). The book concludes that (i) a reasonable working model to understand the ongoing banking stress must triangulate a comprehensive understanding of three aspects -- namely, economics, regulation, and accounting -- in the present context, of interest-rate risk management by banks; and that, (ii) sound banking sector policy in response to this stress should aim to remain adaptive, nuanced and robust, in particular by recognizing the inevitable risk that risks stressing the banking sector keep changing over time.

Keywords: Regional Banking Crisis, Uninsured Deposits, Bank Runs, Silicon Valley Bank, Signature Bank, First Republic Bank, Interest Rate Risk Management, Stagflation Stress Test, Deposit Insurance, Mark to Market Accounting, Federal Home Loan Banks, Bank Supervision

JEL Classification: G01, G21, G28, E5

Suggested Citation

Acharya, Viral V. and Acharya, Viral V. and Richardson, Matthew P. and Schoenholtz, Kermit L. and Tuckman, Bruce and Berner, Richard and Cecchetti, Stephen G. and Cecchetti, Stephen G. and Kim, Sehwa and Kim, Seil and Philippon, Thomas and Ryan, Stephen G. and Savov, Alexi and Schnabl, Philipp and White, Lawrence J. and White, Lawrence J., SVB and Beyond: The Banking Stress of 2023 (July 17, 2023). Available at SSRN: https://ssrn.com/abstract=4513276 or http://dx.doi.org/10.2139/ssrn.4513276

Viral V. Acharya (Contact Author)

New York University (NYU) - Leonard N. Stern School of Business ( email )

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New York, NY NY 10012
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2129954256 (Fax)

HOME PAGE: http://www.stern.nyu.edu/~vacharya

New York University (NYU) - Department of Finance ( email )

Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
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National Bureau of Economic Research (NBER) ( email )

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Matthew P. Richardson

Department of Finance, Leonard N. Stern School of Business, New York University ( email )

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+1 (212) 998-0349 (Phone)
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Kermit L. Schoenholtz

New York University - Stern School of Business - Department of Economics ( email )

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HOME PAGE: http://w4.stern.nyu.edu/faculty/bio/kim-schoenholtz

Bruce Tuckman

New York University (NYU) - Leonard N. Stern School of Business ( email )

44 West 4th Street
Suite 9-160
New York, NY NY 10012
United States

Richard Berner

Leonard N. Stern School of Business, NYU ( email )

44 West 4th St
New York, NY 10012
United States

Stephen G. Cecchetti

Brandeis International Business School ( email )

415 South Street
Waltham, MA 02453
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
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212-720-8629 (Phone)
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Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

European Systemic Risk Board ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Sehwa Kim

Columbia University - Columbia Business School ( email )

3022 Broadway
New York, NY 10027
United States

Seil Kim

Baruch College, City University of New York ( email )

One Bernard Baruch Way, Box B12-225
New York, NY 10010
United States

Thomas Philippon

New York University (NYU) - Department of Finance ( email )

Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Stephen G. Ryan

New York University (NYU) - Leonard N. Stern School of Business ( email )

44 West 4th Street, Suite 10-73
New York, NY 10012-1118
United States
212-998-0020 (Phone)

Alexi Savov

New York University (NYU) - Department of Finance ( email )

Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Philipp Schnabl

New York University (NYU) - Department of Finance ( email )

Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States

HOME PAGE: http://pages.stern.nyu.edu/~sternfin/pschnabl/

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Lawrence J. White

New York University (NYU) - Leonard N. Stern School of Business, Department of Economics ( email )

44 West 4th Street
Suite 9-160
New York, NY NY 10012
United States

Stern School of Business, New York University ( email )

44 West 4th Street
New York, NY 10012
United States
212-998-0880 (Phone)
212-995-4218 (Fax)

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