Decisions by the Federal Reserve and the Federal Deposit Insurance Corporation (FDIC) concerning the future of Silicon Valley banks could affect regional banks across the United States, putting billions of dollars in bank runs at risk. Said Former Bridgewater executive and CEO of investment firm Unlimited Bob Elliott.
In a Twitter thread on March 11, Elliott said that about a third of deposits in the United States are in small banks, and about 50% are uninsured. “The FDIC insures small deposits in all banks in the US, but it covers only 9tln out of about 17tln of the outstanding deposit base. […] Most institutions under the hood have coverage rates around 50% while credit unions are higher (not above).
The Fed/FDIC’s rulings on SVBs determine whether they put a bank at risk of trillions of dollars in size.
1/3 of US deposits are in small banks and ~50% are uninsured. Haircutting SVB depositors would raise sensible questions about keeping deposits at any smaller bank, risking a wider run. pic.twitter.com/RTCqekAQX4
— Bob Elliott (@BobEUnlimited) March 11, 2023
As of February 2023, small banks in the United States are expected to hold $6.8 trillion in assets and $680 billion in equity, according to Fed data. Given this scenario, Elliott said, a tech bank failure would put “thousands of smaller banks at risk of being walked out”, making SBV’s situation a “main street problem”.
Elliott’s comments were among many others seen on social media channels over the weekend as fear surrounded the California bank’s future. A petition created by YCombinator CEO Gary Tan claims that nearly 40,000 of all Silicon Valley bank depositors are small businesses. “If quick action is not taken, more than 100,000 people could soon lose their jobs,” says document Urging regulators to “step up for depositors and implement backstops”.
The FIDC and the Fed are reportedly discussing creating a fund to backstop excess deposits in troubled banks. According A Bloomberg report cited people familiar with the matter. The fund is a response to the SVB collapse and aims to reassure depositors and reduce panic.
Silicon Valley Bank is one of the top 20 largest banks in the United States, providing banking services to many crypto-friendly venture firms. Assets from Blockchain VCs Total over $6 billion in the bank$2.85 billion from Andreessen Horowitz (a16z), $1.72 billion from Paradigm, and $560 million from Pantera Capital.