Off Balance
US banks are in trouble, pigs invade Singapore, semiconductors are geopolitical chips, water water nowhere in West Asia
UPDATE: A simple analysis of U.S. banks’ asset exposure to a recent rise in the interest rates has implications for financial stability. The U.S. banking system’s market value of assets is US$2.2 trillion lower than suggested by their book value of assets. Almost 190 banks are at risk with potentially more than US$250 billion of insured deposits at risk.
Hunting and urbanization wiped wild pigs from mainland Singapore almost four decades ago. But since the 1990s, the pigs have staged a remarkable comeback by swimming across the one-kilometer Johore Strait from Peninsular Malaysia and the offshore islands of Pulau Tekong and Pulau Ubin.
From a geopolitical and policy standpoint, this means that a handful of firms—and the countries in which they reside—dominate entire segments of the semiconductor supply chain, on account of their technological pedigree developed from decades of capital investment and government support.
The increasing frequency, severity, and geographic range of sand and dust storms have become a harbinger of things to come. Climate experts say rising heat coupled with decades of poor water management and inefficient agricultural practices have degraded land across West Asia, making it easier for dust particles to be picked up and swept across vast areas.
Banks in the United States
Stanford University’s Hoover Institute analyzed U.S. banks’ asset exposure to a recent rise in the interest rates with implications for financial stability. The U.S. banking system’s market value of assets is US$2 trillion lower than suggested by their book value of assets accounting for loan portfolios held to maturity. Marked-to-market bank assets have declined by an average of 10% across all the banks, with the bottom 5th percentile experiencing a decline of 20%. Uninsured leverage (i.e., Uninsured Debt/Assets) is the key to understanding whether these losses would lead to some banks in the U.S. becoming insolvent-- unlike insured depositors, uninsured depositors stand to lose a part of their deposits if the bank fails, potentially giving them incentives to run.
A case study of the recently failed Silicon Valley Bank (SVB) is illustrative. 10 percent of banks have larger unrecognized losses than those at SVB. Nor was SVB the worst capitalized bank, with 10 percent of banks having lower capitalization than SVB. On the other hand, SVB had a disproportional share of uninsured funding: only 1 percent of banks had higher uninsured leverage. Combined, losses and uninsured leverage provide incentives for an SVB uninsured depositor run. We compute similar incentives for the sample of all U.S. banks. Even if only half of uninsured depositors decide to withdraw, almost 190 banks are at a potential risk of impairment to insured depositors, with potentially $300 billion of insured deposits at risk. If uninsured deposit withdrawals cause even small fire sales, substantially more banks are at risk. Overall, these calculations suggests that recent declines in bank asset values very significantly increased the fragility of the US banking system to uninsured depositor runs.
A simple analysis of U.S. banks’ asset exposure to a recent rise in the interest rates has implications for financial stability. The U.S. banking system’s market value of assets is US$2.2 trillion lower than suggested by their book value of assets. These losses, combined with a large share of uninsured deposits at some U.S. banks can impair their stability. Even if only half of uninsured depositors decide to withdraw, almost 190 banks are at a potential risk of impairment to even insured depositors, with potentially more than US$250 billion of insured deposits at risk absent regulatory intervention. If uninsured deposit withdrawals cause even small fire sales, substantially more banks are at risk. Overall, these calculations suggest that recent declines in bank asset values significantly increased the fragility of the US banking system to uninsured depositors runs.
There are several medium-run regulatory responses one can consider to an uninsured deposit crisis. One is to expand even more complex banking regulation on how banks account for mark to market losses. However, such rules and regulation, implemented by myriad of regulators with overlapping jurisdictions might not address the core issue at hand consistently. Alternatively, banks could face stricter capital requirement, which would bring their capital ratios closer to less regulated lenders, as documented in Jiang et al. (2020). Discussions of this nature remind us of the heated debate that occurred after the 2007 financial crisis, which many might argue did not result in sufficient progress on bank capital requirements. They also resonate well with historical studies on the impact of deposit insurance on banks’ risk-taking behaviour.
Download the article here.
Pigs in Singapore
Wild pigs roam the globe. Originally from Eurasia and North Africa, they’re now one of the most invasive species worldwide, trotting from the pine forests of North America to the wetlands of Oceania. Despite their world domination, we know little about how they’re taking over or the impact they have on ecosystems.
A multi-institution collaborative study conducted by researchers from Singapore, Australia, and the United States tracked the movement of wild pigs in Singapore, in particular the speed and geographical distribution of their dispersal. Integrating interviews with local wildlife researchers and park employees with camera trap data collected across the country’s fragmented green areas, researchers made a surprising discovery: the pigs were entering the country via sea and quickly recolonizing the green spaces across the island nation.
Hunting and urbanization wiped wild pigs from mainland Singapore almost four decades ago. But since the 1990s, the pigs have staged a remarkable comeback by swimming across the one-kilometer Johore Strait from Peninsular Malaysia and the offshore islands of Pulau Tekong and Pulau Ubin. Since their resurgence, the porkers have steadily journeyed southward along the edges of regenerated forests, eating human crops and garbage while sheltering in natural vegetation.
In 2017, researchers estimated that there were more than 40 wild pigs living in MacRitchie, a 10.2-square-kilometer area of forested land in the center of Singapore nearly 15 kilometers from the Malaysian border. These hogs spread from one green space to the next, and the recolonization pathway predicts that pig populations will soon extend to the southern tip of Singapore.
Native to Singapore’s ecosystems, wild pigs once coexisted with natural predators such as tigers and leopards, which helped regulate their population. The current landscape, however, bears little resemblance to the forest the pigs called home decades ago. Researchers now worry that the reintroduction of these animals may harm the local ecosystem.
A hyperabundance of wild pigs may cause cascading ecological consequences including erosion, overgrazing, and vegetation damage. “The ability of wild pigs to disperse across a cityscape exceeded our predictions,” the authors say. They recommend keeping a close eye on their numbers and using active population control to keep the porkers in check.
Read more here.
Chips in Geopolitics
This graph, well-known among chip industry insiders, illustrates a trend concerning the building blocks of electronics: the micro-switches—or gates—that combine to create complex circuits in a computer or device.
In essence, more gates/transistors = more computing power.
When the first transistor was invented at Bell Labs in 1947, it was the size of a desk ornament. Over the decades, scientists and engineers have shrunk them to the nano-scale, with the most cutting-edge chips on the market today boasting 300 million transistors per square millimeter of chip.
The density of transistors on a single chip has historically doubled every two years, while the cost-per-transistor has halved. This empirical observation was made by co-founder of Intel Gordon Moore in 1965, and has since been dubbed “Moore’s Law.” The persistence of this trend has meant an explosion in computing power, the reduction of its cost, and the ubiquity of chips across industries over time. This explosion has enabled innovation in technologies which make us more productive, more connected, more comfortable, healthier, and safer.
However, chip density- and cost-scaling have slowed in the last decade, with cost-scaling even reversing towards more advanced nodes.* The chart above shows that after scaling hit 28nm (a process first commercialised in 2011), cost-reduction stopped due to the extreme complexity and number of process steps required to make an advanced chip.
As a result, designing and manufacturing a chip at the cutting-edge has become increasingly capital intensive and cost-prohibitive for most firms. This is amplified by the winner-take-all nature of the chip industry: if you make the best product, you capture an overwhelming majority of the revenue which can be reinvested; if you fall behind, good luck catching up.
From a geopolitical and policy standpoint, this means that a handful of firms—and the countries in which they reside—dominate entire segments of the semiconductor supply chain, on account of their technological pedigree developed from decades of capital investment and government support.
China has committed to closing the gap between itself and the rest of the world through a strategy of massive state investment in all segments of its domestic chip industry and the innovation ecosystem which support it.
Without a long-term commitment to investing in STEM and advanced manufacturing capacity, the U.S. risks becoming increasingly dependent on China for the technologies that power the modern economy.
Read more here.
Water in West Asia
The increasing frequency, severity, and geographic range of sand and dust storms have become a harbinger of things to come. Climate experts say rising heat coupled with decades of poor water management and inefficient agricultural practices have degraded land across West Asia, making it easier for dust particles to be picked up and swept across vast areas. The phenomenon is a drastic example of how water insecurity and climate change are interconnected.
Heat is not foreign to West Asia, but it is getting hotter. A 2022 International Monetary Fund report declared that the Middle East has been heating up twice as fast as the global average. In 2019, the World Resources Institute reported that 12 of the 17 most water-stressed countries in the world are in the MENA region. As these countries face unprecedented levels of corruption, debt, and unemployment, they will be hit with intolerable levels of water insecurity exacerbated by climate change. Economic growth to meet the former challenges will need to be environmentally sustainable to reduce the risk of exacerbating the latter. Overcoming neither challenge will be catastrophic, and the costs of business as usual are growing by the day.
Land in the Middle East is being exhausted. Ancient nonrenewable underground aquifers are disappearing. Saltwater intrudes both above and below the ground, destroying crops and subterranean sources of drinking water. For many people in the region, this is not a grim future—this is the present. Many parts of the region are becoming uninhabitable because agricultural and pastoral livelihoods are untenable with existing infrastructure. As those people encroach on cities in search of jobs and shelter, they are often not trained in other skills and become another burden on urban areas that struggled to sustain the existing population. This dramatically affects women who struggle to enter the labor force in the Middle East. Agriculture is the largest employer of women in the MENA region. The female share of the agricultural workforce increased from 30 percent in 1980 to almost 45 percent in 2010, and exceeding 60 percent in Jordan, Libya, Syria and the occupied Palestinian Territory. Women who work on farms in the Middle East are often left without skills to obtain other sources of employment or are constrained in the types of employment they may seek.
As land becomes fallow and further desertification desiccates the land people and their animals depend on, the warming may also be accelerating, creating a vicious cycle. As summer approaches, Iraqis will expect another season of temperatures hovering over 48 degrees Celsius, reaching 55 degrees Celsius in some countries. Government workers and school children will likely be told to stay home again. But with constant power cuts, there is no respite anywhere. One report coauthored by Babel guest Elfatih Eltahir has predicted that at the end of this century, areas of the Persian Gulf could be hit by waves of heat and humidity so severe that simply being outside for several hours could threaten human life. Because of humanity’s contribution to climate change, the authors wrote, some population centers in the Middle East would “exceed the threshold for human adaptability”. This will affect everything from labor laws to rescheduling the annual hajj outside of the hot summer months.
Climate scientists say that rising heat combined with decades of poor water management and inefficient agricultural practices have degraded land across the region. With inefficient water usage, the environment has struggled to accommodate a far larger population. Abundant energy resources and U.S. assistance, which tended to prize near-term stability over sustainability, allowed deserts and arid regions to quickly develop, supporting huge numbers of people with reasonable standards of living and, therefore, higher levels of consumption.
A third of the countries in the region are embroiled in active conflicts and many others are hosting refugees displaced from those conflicts. Conflicts further delay sustainable planning, degrade human development indicators, and inhibit the data collection needed for regulation. Two of the countries most vulnerable to climate change and water insecurity, Iraq and Yemen, will continue to grow exponentially. It is expected that Iraq will grow from 44 million people to 112 million by 2100. The persistence of the current governance and economic model will compromise future generations.
Though Lebanon and Iraq were once considered relatively water abundant, both have fallen into the category of water stressed in recent years with hardly any wastewater treated—further exacerbating water insecurity. The failure to provide water, among other basic services, especially when it is clear that everyone is not suffering from the same scarcity, has brought the region to a boiling point. Governments in the region should invest in infrastructure, advance transboundary water cooperation, and raise tariffs and taxes, at a moment when they have no money, no peace, and no trust from their populations and, often, their neighbors.
Read more here.