Charts of the Week: Opportunity Amid the US Banking Crisis
- By Matthew Tibble
- 6 min read
Summary
- Amid the US banking crisis, we find opportunities to go long four banks.
- Examining deposit-asset ratios, new research implies a limited risk of further bank runs.
- Analysis of the past 40 years reveals crises follow patterns, with markets nearly always recovering.
US Banks Look Like an Opportunity
The ongoing banking crisis has scrambled bank valuations (Chart 1). Banks remain depressed nearly three weeks into the crisis because of uncertainty about other weak banks out there, and the corrosive impact of the deposit insurance imbroglio. However, we think the banking sector will bounce back and go long Citigroup, JP Morgan Chase, Morgan Stanley and Goldman Sachs.
US Banks’ Exposure to Runs
A new National Bureau of Economic Research (NBER) working papersuggests that recent declines in bank assets – around 10% across all banks – have ‘very significantly’ increased exposure to uninsured depositor runs. Supporting our above argument, however, they also find very few banks have a larger uninsured deposit-to-asset ratio than Silicon Valley Bank (SVB), implying a low risk of further bank runs (Chart 2).
Markets Move on After Crises
After more than a decade of relative calm in the banking sector, the Silicon Valley Bank (SVB) crisis was a wake-up call and reminder that bank runs and failures can still happen. We analysed 40 years of banking crises to find many similarities. Two are that crises typically strike when rates are high, and markets nearly always soon recover – so for investors caught in a downdraft, the best strategy is to wait it out.
