Over 40,000 of Silicon Valley Bank’s depositors are reportedly small businesses, according to a petition calling for regulators to intervene.
According to former Bridgewater executive and CEO of investment firm Unlimited Bob Elliot, decisions by the Federal Reserve and Federal Deposit Insurance Corporation (FDIC) regarding the future of Silicon Valley Bank (SVB) may have an impact on regional banks throughout the United States, putting trillions of dollars at risk of a bank run.
On March 11, Elliot noted in a Twitter thread that approximately 50% of deposits at small banks in the US are not insured. “All US banks accept FDIC-insured small deposits, but only around 9 trillion of the almost 17 trillion in total outstanding deposits are covered by this insurance. […] Under the hood, credit unions have a greater (but not above) coverage percentage than the majority of institutions, which is around 50%.
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
— Bob Elliott (@BobEUnlimited) March 11, 2023
Fed records show that as of February 2023, small banks in the US had $6.8 trillion in assets and $680 billion in equity. According to this hypothetical situation, a failure of the tech bank would increase the “risk of a run on thousands of small banks,” further turning the SBV crisis into a “main street problem,” according to Elliot.
Elliot’s remarks were just one of several that were posted on social media over the weekend as uncertainty over the California bank’s future spread. According to a petition started by the CEO of Y Combinator, Garry Tan, roughly 40,000 out of all Silicon Valley Bank depositors are small businesses. The document calls on regulators to “come in and provide a backup for depositors” and warns that “over 100,000 individuals could soon lose their employment if immediate action is not taken.”
A fund to support further deposits at struggling banks is apparently being discussed by the FDIC and the Fed, according to a Bloomberg article citing people familiar with the situation. In response to the SVB collapse, the fund aims to reassure depositors and calm their fears.
A number of startup companies that support cryptocurrencies use banking services from Silicon Valley Bank, one of the top 20 banks in the US. The bank acquired more than $6 billion in assets from blockchain venture capitalists, including $2.85 billion from Andreessen Horowitz, $1.72 billion from Paradigm, and $560 million from Pantera Capital.