Former PayPal executive, tech investor, and entrepreneur David Sacks has revealed that another bank run is already underway at a second regional bank following the recent collapse of Silicon Valley Bank.
In a recent interview with UnHerd, Sacks stated that he knows of at least one other bank that is facing mass withdrawals from corporate clients, and added that the situation may spread to other regional banks as well.
Sacks clarified that the issue is more of a business banking phenomenon and less about the consumer side. The problem, according to Sacks, is that the $250,000 FDIC insurance limit is inadequate for a business account.
He added that businesses are safer to transfer their funds to larger, too big to fail banks, as they are more likely to receive unconditional support from the Fed.
The root of the problem, according to Sacks, is that FDIC-insured bank accounts are only insured for up to $250,000. This amount is just not enough for businesses who have reason to believe that their bank may be insecure.
The recent collapse of Silicon Valley Bank has caused concern in global markets, and investors are waiting to see how the U.S. Treasury will respond. Many are wondering whether the Biden administration will guarantee that all depositors at Silicon Valley Bank will be made whole.
SVB collapsed after revealing $1.8 billion in losses, mainly from selling US bonds that lost much of their value due to the Fed’s aggressive rate hikes. However, Treasury secretary Janet Yellen has clarified that a 2008-style bailout of SVB is not possible.
The situation highlights the need for a review of the $250,000 FDIC insurance limit and its adequacy for business accounts. The American economy has a long history of bank panics and runs, and Sacks believes that the current situation may spread to other regional banks.
The Biden administration will need to take action to restore confidence in the banking system and prevent a larger crisis from unfolding.
