The future of Silicon Valley Bank (SVB) is uncertain, and the decisions made by the Federal Reserve and Federal Deposit Insurance Corporation (FDIC) could have a ripple effect on regional banks across the United States. According to former Bridgewater executive and CEO of investment firm Unlimited Bob Elliot, this could put trillions of dollars at risk of a bank run.
Small banks in the United States had $6.8 trillion in assets and $680 billion in equity as of February 2023, according to Fed data. Elliot claims that nearly a third of deposits in the United States are held in small banks, and around 50% are uninsured. This means that a failure on the tech bank would put in “risk of a run on thousands of small banks”, making the SBV situation a “main street problem.”
YCombinator CEO Garry Tan has created a petition claiming that nearly 40,000 of all depositors at Silicon Valley Bank are small businesses. “If swift action isn’t taken, over 100,000 people could soon lose their jobs,” says the document.
In response to the SVB collapse, the FIDC and the Fed are reportedly discussing creating a fund to backstop more deposits at troubled banks. The fund is intended to reassure depositors and reduce panic.
Silicon Valley Bank is one of the top 20 largest banks in the United States, providing banking services to many crypto-friendly venture firms. Assets from blockchain VCs totaled 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.
The decisions made by the FDIC and the Fed concerning the future of Silicon Valley Bank could have a major impact on regional banks across the United States. It is important that swift action is taken to ensure that depositors are protected and that a bank run is avoided.