The bankruptcy of Silicon Valley Bank could lead to a run on US regional banks

Decisions by the Federal Reserve and the Federal Deposit Insurance Corporation (FDIC) about the future of Silicon Valley Bank (SVB) could affect regional banks in the United States, putting trillions of dollars at risk of a bank run. said former Bridgewater executive and CEO of investment firm Unlimited Bob Elliot.

In a Twitter thread on March 11, Elliot stated that nearly a third of deposits in the United States are held in small banks and about 50% are uninsured. “The FDIC insures small deposits with all banks in the US, but that only covers about 9 trillion of the nearly 17 trillion in outstanding deposits. […] Under the hood, the coverage rate at most institutions is around 50%, while credit unions are higher (not higher).”

In February 2023, small banks in the United States had $6.8 trillion in assets and $680 billion in equity, according to data from the Fed. further turning the SBV situation into a “main street problem,” Elliot said.

Total assets, small domestically based commercial banks in the United States. Source: US Federal Reserve

Elliot’s comments were seen among many others on social media channels over the weekend as fear surrounded the California bank’s future. A petition from Y Combinator CEO Garry Tan claims that nearly 40,000 of all Silicon Valley Bank depositors are small businesses. “If action is not taken soon, more than 100,000 people could soon lose their jobs,” says the document, urging regulators “to step in and introduce a backstop for savers.”

According to a Bloomberg report citing people familiar with the matter, the FDIC and the Fed are reportedly discussing creating a fund to cover more deposits in troubled banks. The fund responds to the bankruptcy of the SVB and is intended to reassure savers and reduce panic.

Silicon Valley Bank is one of the 20 largest banks in the United States and provides banking services to many crypto-friendly venture firms. Assets held by blockchain venture capitalists have totaled more than $6 billion at the bank, including $2.85 billion from Andreessen Horowitz, $1.72 billion from Paradigm, and $560 million from Pantera Capital.






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