Former PayPal executive and tech investor David Sacks has revealed that another bank run is underway at a second regional bank, following the sudden collapse of Silicon Valley Bank.
In an interview with UnHerd, Sacks stated that he knew of at least one other bank that was facing mass withdrawals from corporate clients.
While Sacks declined to name the bank in question, he stated that there were other regional banks whose stocks had dropped by 20% on Thursday and Friday, indicating that the market was throwing the question of whether the SVB problem would spread.
Sacks also noted that the bank run phenomenon was primarily a business banking phenomenon, rather than a consumer issue.
The root problem, according to Sacks, was the fact that FDIC-insured bank accounts were only insured for up to $250,000, which was not sufficient for most business accounts.
As a result, businesses were transferring their funds from smaller banks to larger ones, knowing that the Fed was more likely to support a big bank that was in trouble.
Sacks explained that in the absence of adequate insurance, businesses would move their funds out of a bank if they had reason to believe that it might be insecure.
This was driven by game theory, in which the penalty for transferring money out was low, but the potential gain was high if the rumor was true.
Global markets are anxiously waiting to see how the U.S. Treasury will respond on Monday and whether the Biden Administration will guarantee that all depositors at Silicon Valley Bank will be made whole.
Sacks, however, believes that the root problem is the inadequate insurance coverage for business accounts, which has the potential to lead to frequent bank runs and panics, as happened before the FDIC was introduced.
