Bob Elliot, a former Bridgewater executive and chief executive of investment firm Unlimited, said decisions by the Federal Reserve and the FDIC on the future of Silicon Valley Bank could affect regional banks across the U.S., exposing trillions of dollars to bank runs. risk.
In a March 11 Twitter post, Elliott said that nearly one-third of deposits in the U.S. are held in small banks, and about 50% are uninsured. “The FDIC insures small deposits at all U.S. banks, but this only covers about 9 trillion of the nearly 17 trillion outstanding deposit base. Behind the scenes, most institutions have coverage of about 50 %, while credit unions are higher (not higher than).”
Small banks in the U.S. had $6.8 trillion in assets and $680 billion in equity as of February 2023, according to the Federal Reserve. Given the circumstances, the tech bank's failure would pose "the risk of a run on thousands of smaller banks," further making the SBV situation a "main street problem," Elliott said.
Elliott's comments were among many others seen on social media channels over the weekend as fears abounded over the future of the California bank. A petition created by YCombinator CEO Garry Tan claims that nearly 40,000 of all depositors at Silicon Valley Bank are small businesses. "Without swift action, more than 100,000 people could soon lose their jobs," the document said, urging regulators to "step in and provide support to savers."
The FIDC and the Federal Reserve are reportedly discussing creating a fund to back more deposits at struggling banks, Bloomberg reported, citing people familiar with the matter. The fund was a response to the SVB debacle, aimed at reassuring savers and reducing panic.
Silicon Valley Bank is one of the top 20 banks in the US and provides banking services to many crypto-friendly venture capital firms. Assets from blockchain VCs total more than $6 billion at the bank, including $2.85 billion from Andreessen Horowitz (a16z), $1.72 billion from Paradigm and $560 million from Pantera Capital.
