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‘Banks continue to become increasingly less relevant’: the professor who sees a $2 trillion hole in the economy predicts a thinning of the herd

‘Banks continue to become increasingly less relevant’: the professor who sees a $2 trillion hole in the economy predicts a thinning of the herd


Silicon Valley Bank’s failure in March 2023 was a watershed moment for the banking sector. The $210 billion collapse was the third-biggest in American history, sending shockwaves throughout the industry and exposing the solvency issues created by rising interest rates. 

Columbia finance professor Tomasz Piskorski is one of the leading experts in surveying the post-SVB landscape, as one of the co-authors of a widely read 2023 study estimating a $2 trillion decline in banks’ asset values after the monetary tightening of the previous year. At the Fortune Future of Finance conference in New York City, Piskorski said the long-term consequence of higher-for-longer interest rates and new regulations will mean banks becoming less central to the financial system, as private credit and nonbank mortgage lenders such as Rocket Mortgage pick up the slack.

“Banks continue to become increasingly less relevant, especially smaller-to-mid-sized banks,” Piskorski, Columbia’s Edward S. Gordon Professor of Real Estate, said Thursday. “Because of consolidation in the banking industry, I predict that in two years, we’ll have much fewer smaller-to-mid-size banks.”

Banks are being forced to confront new risks post-pandemic, as tight Fed monetary policy devalues many of their loans and real estate holdings. They’re also contending with a string of bank failures that have exposed how quickly a seemingly stable bank can go under. Last March, Santa Clara-based SVB collapsed virtually overnight after depositors withdrew $175.4 billion in deposits in a matter of days. 

SVB’s clients started pulling their deposits after concerns circulated relating to losses the bank sustained on its long-term Treasury holdings, which went underwater after the Fed started hiking interest rates—so-called “duration risk.” SVB simply couldn’t handle the speed of the bank run, requiring the FDIC to step in and repay depositors: A new problem banks are being forced to contend with.

“Regulations we have around liquidity were written before a time that you could move millions of dollars from a tiny device in your hand while on the subway,” Adrienne Harris, Superintendent of New York State’s Department of Financial Services, the state’s financial regulator, said. “You see 20% of deposits leave an institution in four hours. We’ve never seen anything like that before.”

Bank runs aside, the macro conditions that led to last year’s bank failures…

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