Researcher ORCID Identifier

0009-0005-6793-4603

Graduation Year

2024

Date of Submission

4-2024

Document Type

Open Access Senior Thesis

Degree Name

Bachelor of Arts

Department

Economics

Reader 1

Angela Vossmeyer

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Terms of Use for work posted in Scholarship@Claremont.

Rights Information

© 2024 Hiyab Abraha

Abstract

The March 2023 collapse of Silicon Valley Bank (SVB) marked the second largest bank failure in United States history and the largest bank failure since the 2008 Global Financial Crisis (GFC). This paper analyzes the mechanisms underlying SVB’s downfall and explores the specific systemic vulnerabilities that March 2023 revealed. To study the impact of systemic risk reclassification on individual bank balance sheets, I construct a quarterly panel dataset of the largest US chartered banks and track their regulatory classification and financial reports from 2009 to 2023. The 2018 Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA) changed the Federal Reserve’s classification threshold for banks from $50 billion under the Dodd-Frank Wall Street Reform and Consumer Protection Act (DFA) to $250 billion under the new law. I exploited this as a natural policy experiment potentially reflecting changes in balance sheet compositions in response to the EGRRCPA. The findings in this paper indicate that systemic reclassification had no significant impact on the held-to-maturity securities to deposits ratio for reclassified banks, but it did lead to an increase in logged total held-to-maturity securities holdings. These results suggest that reclassification had a positive influence on the logged HTM holdings for reclassified banks but not on the ratio compositions of HTM securities to deposits.

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