According to the article, this was a result of investors’ reactions to SVB Financial Group selling a portion of its securities portfolio at a $1.8 billion loss due to a decline in deposits.
As a result of banks investing their spare funds in bonds during the low-interest rate environment, there are more than $600 billion in unrealized losses on securities holdings throughout the banking industry. The article claims that while rates have increased, bond prices have now decreased.
As happened at SVB Financial Group, banks only have to sell their bonds at a loss if they experience a deposit outflow. But, investors’ worries that this would occur drove the price of financial equities to plunge, according to the study.
As happened at SVB Financial Group, banks only have to sell their bonds at a loss if they experience a deposit outflow. But, investors’ worries that this would occur drove the price of financial equities to plunge, according to the study.
Due to a historic decline in deposits, banks have been forced to raise their deposit rates to entice customers away from higher-yield alternatives.
According to Bloomberg News, commercial bank deposits have decreased for the first time since 1948 as a result of clients switching to products like Treasury notes and money market funds.
According to the study, this has prompted banks to start raising their own rates, particularly for certificates of deposit (CDs).
