Failure of Silicon Valley Bank might spark a run on U.S. regional banks

A petition encouraging authorities to intervene says that over 40,000 Silicon Valley Bank customers are small enterprises.

Former Bridgewater executive and current CEO of investment firm Unlimited, Bob Elliot, stated that Federal Reserve and Federal Deposit Insurance Corporation (FDIC) decisions regarding the future of Silicon Valley Bank could impact regional banks across the United States, putting trillions of dollars at risk of a bank run.

On March 11, Elliot noted in a Twitter thread that small banks hold approximately a third of deposits in the United States, and around half are uninsured. “The FDIC guarantees modest deposits in all U.S. banks, but just 9 trillion of the almost 17 trillion outstanding deposits are covered. […] Beneath the hood, the coverage percentage for most institutions is around 50 percent, whereas credit unions are higher (not higher).”

According to Fed statistics, small banks in the United States have $6.8 trillion in assets and $680 billion in equity as of February 2023. Under this scenario, the bankruptcy of the tech bank would increase the “potential of a run on hundreds of small banks,” said Elliot, making the SBV predicament a “main street issue.”

Fear surrounding the future of the California bank over the weekend and Elliot’s remarks were among many others seen on social media networks. Garry Tan, chief executive officer of YCombinator, claims in a petition that over 40.000 Silicon Valley Bank depositors are small enterprises. The paper urges authorities to “move in and provide a backup for depositors” because if immediate action is not taken, over 100,000 individuals might lose their employment.

Bloomberg reports that FIDC and the Fed are contemplating the creation of a fund to support further deposits at struggling banks, citing sources familiar with the situation. The fund is meant to calm depositors and decrease panic regarding the SVB’s failure.

Silicon Valley Bank is one of the twenty most significant banks in the United States and provides financial services to several crypto-friendly startups. The bank held over $6 billion in blockchain venture capitalists’ assets, including $2.85 billion from Andreessen Horowitz (a16z), $1.72 billion from Paradigm, and $560 million from Pantera Capital.

Also Read: Circle States That $3,3 Billion In USDC Reserves Are Held At Silicon Valley Bank