The Federal Reserve and the Federal Deposit Insurance Corporation (FDIC) have been at the forefront of discussions regarding the future of Silicon Valley Bank.
Former Bridgewater executive and CEO of investment firm Unlimited, Bob Elliot, warns that decisions made regarding SVB could have far-reaching effects on regional banks throughout the United States, putting trillions of dollars at risk of a bank run.
In a recent Twitter thread, Elliot shared that nearly a third of all deposits in the US are held in small banks, with around 50% of these deposits being uninsured.
While the FDIC insures small deposits in all banks across the country, this only covers roughly 9 trillion out of the nearly 17 trillion in outstanding deposit base.
Elliot highlights that under the hood, the coverage rate is roughly 50% across most institutions while credit unions have higher coverage rates.
The concerns over SVB have not gone unnoticed. Fear has surrounded the future of the California bank, with many taking to social media to share their thoughts. YCombinator CEO Garry Tan has created a petition, claiming that nearly 40,000 depositors at SVB are small businesses.
The petition urges regulators to step in and implement a backstop for depositors to prevent the potential loss of over 100,000 jobs.
FDIC and the Fed are reportedly in discussions about creating a fund to backstop more deposits at troubled banks, as a response to the potential collapse of SVB.
The fund is intended to reassure depositors and reduce panic, with the aim of mitigating the risk of a bank run on thousands of small banks throughout the country.
The FDIC and the Fed’s decisions regarding the future of SVB will undoubtedly have ripple effects throughout the banking industry. The potential fallout could put trillions of dollars at risk of a bank run, with small businesses and their employees bearing the brunt of the impact.
The creation of a fund to backstop more deposits at troubled banks is a step in the right direction to mitigate this risk and prevent a potentially catastrophic outcome.
