Silicon Valley Bank failure could trigger run on U.S. regional banks

The Federal Reserve and Federal Deposit Insurance Corporation (FDIC) decisions regarding the future of Silicon Valley banks could affect rural banks across the country, putting trillions of dollars at risk of a bank run. Said Former Bridgewater executive and CEO of investment firm Unlimited Bob Elliott.

Elliott said in a March 11 Twitter thread that nearly a third of U.S. deposits are held in smaller banks, and about 50% are uninsured. “While the FDIC insures small deposits at every bank in the United States, it covers only about 9 trillion of the approximately 17 trillion outstanding deposit base. […] Under the hood, most institutions have around 50% coverage, but credit unions are higher (but not higher). “

As of February 2023, smaller US banks had $6.8 trillion in assets and $680 billion in equity, according to Federal Reserve data. Given this scenario, the failure of Techbank poses a “risk of crackdowns on thousands of smaller banks,” making the SBV situation even more “a major problem,” Elliot said.

Total assets, a small domestic chartered commercial bank in the United States.Source: US Federal Reserve

Elliott’s comments were among many others seen on social media channels over the weekend, with fears surrounding the future of California’s banks. A petition drafted by his CEO of YCombinator, Garry Tan, claims that about 40,000 of all Silicon Valley Bank depositors are small businesses. “More than 100,000 people could be out of work soon if swift action is not taken,” he said. document It called on regulators to “intervene and introduce a backstop for depositors.”

FIDC and the Fed are reportedly in talks to create a fund to increase deposits in troubled banks. according to Bloomberg reported, citing people familiar with the matter. The fund is a response to the collapse of the SVB and aims to reassure depositors and reduce panic.

Silicon Valley Bank is one of the top 20 largest banks in the US and provides banking services to many crypto-friendly ventures. Assets from blockchain VCs total $6 billion in banks, including $2.85 billion from Andreessen Horowitz (a16z), $1.72 billion from Paradigm and his $560 million from Pantera Capital exceeded.