Failure of Silicon Valley Bank might lead to a run on US regional banks

by Mar 12, 2023CryptoNews0 comments

Over 40,000 Silicon Valley Bank depositors, according to a petition requesting authorities to intervene, are small companies.

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 around 50% of deposits at small banks in the US need to be insured. “A tiny portion of the almost 17 trillion in outstanding deposits, or around 9 trillion, are insured by the FDIC in all US banks. […] Beneath the hood, credit unions have a greater (but not above) coverage percentage than the majority of institutions, which hovers around 50%.”

Silicon Valley Bank vs. Hypothetical Case

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 hundreds of tiny banks,” further turning the SBV issue into a “main street concern,” according to Elliot.

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Total Assets, Small Domestically Charted Commercial Banks
Total Assets, Small Domestically Charted Commercial Banks

Elliot’s remarks were just one of several 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 might soon lose their employment if immediate action isn’t done.”

According to a Bloomberg article citing persons familiar with the situation, FIDC, and the Fed are allegedly debating the establishment of a fund to support further deposits at failing banks. The fund, created in reaction to the SVB collapse, aims to reassure depositors and calm their fears.

Conclusion

One of the top 20 banks in the US, Silicon Valley Bank offers banking services to several entrepreneurial businesses 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 have reached over $6 billion in the bank.

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