Decisions by the Federal Reserve and the Federal Deposit Insurance Corporation (FDIC) on the future of Silicon Valley banks could affect regional banks across the U.S., exposing trillions of dollars to bank runs, said Bob Elliot, a former Bridgewater executive and chief executive of investment firm Unlimited. risk.
In a Twitter post on March 11, Elliott said that nearly one-third of deposits in the U.S. are held in small banks, and about 50% are uninsured. “The FDIC insures small deposits at all U.S. banks, but this only covers about 9 trillion of the nearly 17 trillion outstanding deposit base. […] Behind the scenes, most agencies have about 50% coverage, and credit unions are much higher (no more than that). “
The Fed/FDIC decision on the SVB determines whether they will risk the multi-trillion dollar scale of the bank’s operations.
A third of deposits in the US are held in small banks, and about 50% are uninsured. Discounting SVB depositors would make judiciously question holding deposits at any small bank and thus risk a wider run. pic.twitter.com/RTCqekAQX4
– Bob Elliott (@BobEUnlimited) March 11, 2023
Small banks in the US had $6.8 trillion in assets and $680 billion in equity as of February 2023, according to the Federal Reserve. Given the circumstances, the tech bank’s failure would pose “the risk of a run on thousands of smaller banks,” further making SBV’s situation a “main street problem,” Elliott said.
Total assets of small U.S. domestic chartered commercial banks.Source: Federal Reserve
Elliott’s comments were among many others seen on social media channels over the weekend as fears abounded over the future of the California bank. A petition created by YCombinator CEO Garry Tan claims that nearly 40,000 of all depositors at Silicon Valley Bank are small businesses. “Without swift action, more than 100,000 people could soon lose their jobs,” the document said, urging regulators to “step in and provide support to savers.”
The FIDC and the Federal Reserve are reportedly discussing creating a fund to back more deposits at struggling banks, Bloomberg reported, citing people familiar with the matter. The fund was a response to the SVB debacle, aimed at reassuring savers and reducing panic.
Silicon Valley Bank is one of the top 20 banks in the US and provides banking services to many crypto-friendly venture capital firms. Assets from blockchain VCs total more than $6 billion in the bank, including $2.85 billion from Andreessen Horowitz (a16z), $1.72 billion from Paradigm and $560 million from Pantera Capital.
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