The Federal Reserve and the Federal Deposit Insurance Corporation (FDIC) are currently facing a crucial decision that could affect the future of Silicon Valley Bank and put trillions of dollars at risk of a bank run.
The former Bridgewater executive and CEO of investment firm Unlimited, Bob Elliot, took to Twitter on March 11, to warn of the potential dangers ahead.
Elliot stated that around a third of deposits in the United States are held in small banks, and almost 50% are uninsured. This situation puts small banks at great risk, and the possible failure of Silicon Valley Bank would put thousands of these banks at risk of a run, making the issue a “main street problem.”
According to Fed data, small banks in the United States had $6.8 trillion in assets and $680 billion in equity as of February 2023. This is why many are concerned about the potential fallout from the failure of Silicon Valley Bank.
As fear continues to mount on social media channels, YCombinator CEO Garry Tan created a petition that claims nearly 40,000 of all depositors at Silicon Valley Bank are small businesses, and over 100,000 people could soon lose their jobs if regulators do not intervene. The petition urges regulators to step in and implement a backstop for depositors.
To address the situation, the FDIC and the Fed are reportedly discussing creating a fund to backstop more deposits at troubled banks, according to Bloomberg. The fund aims to reassure depositors and reduce panic following the Silicon Valley Bank collapse.
The decisions of the Federal Reserve and the FDIC concerning Silicon Valley Bank’s future will be critical to small banks across the United States. It remains to be seen whether regulators will be able to prevent a potential bank run and protect the trillions of dollars at risk.
