The report claims that this was a result of the responses of investors to SVB Financial Group’s decision to sell a section of its securities portfolio at a $1.8 billion loss because of a fall in deposits.
There are more than $600 billion in unrealized losses on securities holdings throughout the banking industry as a result of banks putting their extra cash in bonds during the low-interest rate environment. According to the publication, bond prices have dropped even while interest rates have gone up.
Banks only have to sell their bonds at a loss if they incur a deposit outflow, as was the case with SVB Financial Group. Yet, the study found that the price of financial shares fell due to investors’ concerns that this might happen.
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).
