Welcome to Nonrival, the newsletter where readers make predictions about tech, business, and the economy.
How it works
- On Sundays, read the newsletter and make a forecast by clicking a link at the bottom.
- On Wednesdays, see what other readers predicted and how your forecast compares.
- Over time, you’ll get scores based on how accurate your forecasts are.
In this issue
- Forecast: In the wake of Silicon Valley Bank, will more banks fail?
- I'm sending this one early because a lot could change between now, as I finish writing, and tomorrow morning!
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Will more banks fail?
On Friday, Silicon Valley Bank was taken over by federal authorities in the biggest failure of a US bank since the 2008 financial crisis. SVB, which caters to tech startups and VCs, seems to have misjudged the risk of rising interest rates. Then, when it announced it had sold some bonds to improve its financial position, the tech world panicked and depositors started asking for their money back. That caused a classic bank run, forcing the regulators to step in.
SVB’s shocking unraveling raises two big questions:
- Will a wave of tech startups that banked with SVB be forced into bankruptcy—or at least layoffs—due to an inability to access their accounts?
- Will SVB’s failure ripple through the banking sector, taking others down with it?
This week’s forecast is about the second question:
- Will another of the 50 largest commercial banks in the US will fail in 2023?
Here’s the basic story, via the Times’ Dealbook:
More than 500 US banks have failed since 2001, most in the years immediately following the crisis of 2008-2009.
But most of those failures are smaller banks. SVB is not massive, but it’s not small either. The chart below shows annual bank failures but by total assets: SVB is the only failure so far this year but it’s a big one. Only 2008 has a higher level of total assets among failed banks.
At Quartz, Scott Nover and Clarisa Diaz pulled together the biggest bank failures by assets broken out by the actual failure not the yearly total:
(Seven of these would clear the threshold for today's top 50 banks by assets, the metric for this week's forecast.)
What happens now?
The FDIC has three options. The most common resolution is to find a buyer to take over the bank’s assets and liabilities. If there’s no buyer, the FDIC can handle payouts to depositors itself or it can set up a new temporary bank with its own charter, giving depositors time to move their money to another bank. The worry, if there’s no buyer soon, is timing: Almost by definition, most startups don’t bring in enough money to cover their costs and need access to the funds they’ve raised to make payroll.
Forecasters on Manifold Markets give a 63% chance of another bank buying SVB by this coming Saturday.
“This weekend is everything”
The case for contagion
The problem at SVB was misjudging interest rate risk. Could other banks have that issue, too?
The case that other banks are fine
It’s essentially that SVB, while fairly large, is very niche.
Also, the biggest banks are more tightly regulated. A roll-back of Dodd-Frank exempted SVB from some of the stress testing larger banks are still subject to because it wasn't a giant:
Cool cool cool.
Will another of the 50 largest commercial banks in the US will fail in 2023? (Other than SVB.)
The fine print
Just want to make a quick forecast? Click a link above and you're done! Your forecast will be recorded.
Or, click a link and then complete the survey. You can make your forecast more precise and guess what other readers will say.
Deadline: Make a forecast by 9am ET Tues. March 14.
Resolution criteria: For the purposes of this question, the 50 largest commercial banks in the US are the top 50 as listed by the Federal Reserve as of 31 December 2022 (Federal Reserve - Large Commercial Banks). The question will be suspended on 31 December 2023 and the outcome determined using data available from the Federal Reserve and open-source reporting. For the purposes of this question, a bank will be deemed to have failed if it files for bankruptcy, is taken over by the FDIC, or similar outcomes. The acquisition of a distressed bank by other institutions alone would not count (e.g., Federal Reserve - Wachovia).
The 50 largest commercial banks, as of Dec., are listed here. Below are the top 20: