The decision of the Federal Reserve and the Federal Deposit Insurance Corporation (FDIC) on the future of Silicon Valley Bank could affect regional banks in the United States, putting trillions of dollars at risk of opening banks, said former Bridgewater executive and CEO of the Unlimited investment firm Bob Elliot.
In a Twitter thread on March 11, Elliot stated that nearly a third of the deposits in the United States are held in small banks, and about 50% are uninsured. “The FDIC insures small deposits at all banks in the US, but only covers about 9tln of the nearly 17tln outstanding deposit base. […] Under the hood, coverage rates are about 50% at most institutions while credit unions are higher (not higher).
Fed / FDIC decisions on the SVB determine whether they risk banks open trillions of dollars in size.
1/3 of US deposits are in small banks and ~50% are uninsured. Savings SVB haircuts will raise the question of the wisdom of holding deposits in any small bank, with the risk of opening more. pic.twitter.com/RTCqekAQX4
– Bob Elliott (@BobEUnlimited) March 11, 2023
Small banks in the United States have assets of $6.8 trillion and equity of $680 billion in February 2023, according to Fed data. Considering this scenario, the failure of the tech bank will put it at “the risk of a run on thousands of small banks”, further making the SBV situation “a major color problem,” said Elliot.
Elliot’s comments were among many others that appeared on social media channels over the weekend as fears swirled around the future of the California bank. A petition created by YCombinator CEO Garry Tan states that nearly 40,000 of all depositors at Silicon Valley Bank are small businesses. “If swift action is not taken, more than 100,000 people could lose their jobs,” said the document, which called on regulators “to step in and implement a backstop for depositors.”
FIDC and the Fed are reportedly discussing creating a fund to backstop more deposits in troubled banks, according to a Bloomberg report citing people familiar with the matter. The fund is a response to the collapse of SVB and is intended to reassure depositors and reduce panic.
Silicon Valley Bank is one of the 20 largest banks in the United States, providing banking services to many crypto-friendly venture companies. 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.