17 days ago 2 min read

Failure of Silicon Valley Bank Could Lead Run on US Regional Banks

SiliconValeyBank-Bankruptcy-Crypto-CryptoNews

According to former Bridgewater executive and CEO of investment firm Unlimited Bob Elliot, decisions made by the Federal Reserve and the Federal Deposit Insurance Corporation (FDIC) regarding the future of Silicon Valley Bank may have an impact on regional banks throughout the United States and put trillions of dollars at risk of a bank run.

On March 11, Elliot noted in a Twitter conversation that approximately 50% of deposits at small banks in the US are not insured. "The FDIC insures small deposits in all the banks in the US, but that only covers about 9tln of the nearly 17tln of outstanding deposit base. [...] Under the hood the coverage rate is roughly 50% across most institutions while credit unions are higher (not above)."

According to data from the Fed, small banks in the US have $6.8 trillion in assets and $680 billion in equity as of February 2023. According to this hypothetical case, a failure of the tech bank would increase the "potential of a run on thousands of small banks," further turning the SBV issue into a "main street concern," according to Elliot.

Elliot's remarks were just one of several that were posted on social media over the weekend as uncertainty over the California bank's future spread. According to a petition started by YCombinator CEO Garry Tan, roughly 40,000 of all Silicon Valley Bank depositors are small enterprises. The paper pleading with authorities "to step in and provide a backup for depositors" warns that "over 100,000 individuals could soon lose their employment if immediate action isn't done."

FIDC and the Fed are allegedly debating the establishment of a fund to support further deposits at failing banks. The fund was created in response to the SVB bankruptcy and is meant to reassure depositors and calm their fears about the California bank's future. According to a petition started by YCombinator CEO Garry Tan, roughly 40,000 of all Silicon Valley Bank depositors are small enterprises. The paper pleading with authorities "to step in and provide a backup for depositors" warns that "over 100,000 individuals could soon lose their employment if immediate action isn't done."

One of the top 20 banks in the US, Silicon Valley Bank offers banking services to numerous entrepreneurial firms that support cryptocurrencies. With $2.85 billion from Andreessen Horowitz (a16z), $1.72 billion from Paradigm, and $560 million from Pantera Capital, blockchain venture capitalists' assets reached more than $6 billion in the bank.

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