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Silicon Valley Bank failure could trigger run on US regional banks

Federal Reserve and Federal Deposit Insurance Corporation (FDIC) decisions regarding the future of Silicon Valley Bank (SVB) could affect regional banks across the United States, putting trillions of dollars at risk of a bank run, so former Bridgewater CEO and CEO of investment firm Unlimited Bob Elliot.

In a Twitter thread on March 11, Elliot stated that nearly a third of deposits in the United States are held in small banks, and about 50% are uninsured. “The FDIC insures small deposits in all the banks in the United States, but it only covers about 9tln of the almost 1[ads1]7tln of the outstanding deposit base. […] Under the hood, the coverage ratio is about 50% for most institutions, while credit unions are higher (not over).

According to Fed data, small banks in the United States had $6.8 trillion in assets and $680 billion in equity as of February 2023. Considering this scenario, a failure of the tech bank would “risk a run on thousands of small banks ,” further making the SBV situation a “main street problem,” Elliot said.

Total assets, small, domestically chartered commercial banks in the United States. Source: US Federal Reserve

Elliott’s comments were among many seen on social media channels over the weekend as fears surrounded the future of the California bank. A petition created by Y Combinator CEO Garry Tan claims that nearly 40,000 of all Silicon Valley Bank depositors are small businesses. “If swift action is not taken, over 100,000 people could soon lose their jobs,” the document said, urging regulators “to step in and implement a backstop for depositors.”

According to a Bloomberg report citing people familiar with the matter, the FDIC and the Fed are reportedly discussing creating a fund to stop more deposits into troubled banks. The fund is responding to the SVB collapse, and intends to reassure depositors and reduce panic.

Silicon Valley Bank is one of the 20 largest banks in the US, and provides banking services to many crypto-friendly venture firms. Assets from blockchain venture capitalists totaled more than $6 billion in the bank, including $2.85 billion from Andreessen Horowitz, $1.72 billion from Paradigm and $560 million from Pantera Capital.

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