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How will EastWest Bank fair in the banking contagion?

3/13/23 Rocky


East West Bank is known in our community for providing loans to individuals with no US income. Their loans usually require high down payments and higher interest rates.


A lot of the immigrant and chinese community has money deposited in this bank. So lets take a closer look at their balance sheet to see if you money has any risks.


My interpretation is through the lense of an outside amateur and should not be considered as financial advice.


Below is the Silicon Valley Banks 2022 yearly balance sheet. With 216 billion dollars under management. SVB only has 12Billion in equity(Green Arrow). So that is about 5% equity to balance sheet ratio. Meaning a 5% drop in value of the balance sheet would effectively put the bank underwater and result in the bank not being able to meet all their liabilities to depositors.

Not only does SVB have very little equity, they have a 110 billion in demand deposit which is like a checkings account where clients can with draw immediately. With only about 14 billion in cash equivalents, SVB can only provide about 13% of its demand deposit liabilities. A 50billion dollar withdraw(half of its total demand deposit liabilty) results in SVB selling their other assets at a loss, which they can only allow 5% loss before falling underwater.

Its very easy to see how this balance sheet could get out of control.


Now lets look at East West bank's balance sheet.


East West bank has 6billion in equity with a 60 billion balance sheet. Giving it a 10% equity to asset ratio. It has 23 billion demand deposit liability. With 3.4billion in cash equivalents that would satisfy 20% of its demand deposit liabilities.



So overall, East West Bank has twice the margin for loss than SVB(10% vs 5%) as well as significantly better cash flow (20% vs 13%) to satisfy bank runs.


Especially when considering the fact at the tech industry has been the main target battered by the current high interest environment. It is clear how SVB has gotten underwater with its high flying costs and extravagance to attract tech clients.


Although East West Bank would still suffer under a bank run and be hard to fulfill all its obligation if bond markets experience a shock, I would say that it is much healthier than SVB.


But if the contagion spread, would the FED will be willing to save the depositors would be another question...



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