Silicon Valley Bank failure could trigger run on U.S. regional banks
Federal Reserve and Federal Deposit Insurance Corporation (FDIC) decisions concerning the future of Silicon Valley Bank may affect regional banks across 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 around 50% are uninsured. "The FDIC insures small deposits in all the banks in the US, but that only covers about 9tln of the nearly 17tln of outstanding deposit base. [...] Under the hood the coverage rate is roughly 50% across most institutions while credit unions are higher (not above)."
Fed/FDIC decisions on SVB determine whether they risk a bank run trillions of dollars in size.1/3 of US deposits are in small banks and ~50% are uninsured. Haircutting SVB depositors will raise sensible questions about holding deposits at any small bank, risking a broader run. pic.twitter.com/RTCqekAQX4
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. Considering this scenario, a failure on the tech bank would put in "risk of a run on thousands of small banks", further making the SBV situation a "main street problem," said Elliot.
Elliot's comments were among many others seen on social media channels over the weekend as fear surrounded 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. "If swift action isn’t taken, over 100,000 people could soon lose their jobs," says the document urging regulators "to step in
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