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

Federal Reserve and Federal Deposit Insurance Corporation (FDIC) decisions concerning the aboriginal of Silicon Valley Bank whitethorn impact determination banks crossed the United States, putting trillions of dollars astatine hazard of a slope run, said erstwhile Bridgewater enforcement and CEO of concern steadfast Unlimited Bob Elliot. 

In a Twitter thread connected March 11, Elliot stated that astir a 3rd of deposits successful the United States are held successful tiny banks, and astir 50% are uninsured. "The FDIC insures tiny deposits successful each the banks successful the US, but that lone covers astir 9tln of the astir 17tln of outstanding deposit base. [...] Under the hood the sum complaint is astir 50% crossed astir institutions portion recognition unions are higher (not above)."

Small banks successful the United States had $6.8 trillion successful assets and $680 cardinal successful equity arsenic of February 2023, according to Fed data. Considering this scenario, a nonaccomplishment connected the tech slope would enactment successful "risk of a tally connected thousands of tiny banks", further making the SBV concern a "main thoroughfare problem," said Elliot.

Total Assets, Small Domestically Chartered Commercial Banks successful the United States. Source: U.S. Federal Reserve

Elliot's comments were among galore others seen connected societal media channels implicit the play arsenic fearfulness surrounded the aboriginal of the California bank. A petition created by YCombinator CEO Garry Tan claims that astir 40,000 of each depositors astatine Silicon Valley Bank are tiny businesses. "If swift enactment isn’t taken, implicit 100,000 radical could soon suffer their jobs," says the document urging regulators "to measurement successful and instrumentality a backstop for depositors."

FIDC and the Fed are reportedly discussing creating a money to backstop much deposits astatine troubled banks, according to a Bloomberg study citing radical acquainted with the matter. The money is simply a effect to the SVB illness and is intended to reassure depositors and trim panic.

Silicon Valley Bank is 1 of the apical 20 largest banks successful the United States, providing banking services to galore crypto-friendly task firms. Assets from blockchain VCs totaled much than $6 cardinal astatine the bank, including $2.85 cardinal from Andreessen Horowitz (a16z), $1.72 cardinal from Paradigm, and $560 cardinal from Pantera Capital.