Bob Elliot, the ex-Bridgewater executive and CEO of Unlimited Investment, warned that the Federal Reserve and FDIC decisions with regard to Silicon Valley Bank may affect other banks in the US, potentially putting trillions of dollars in jeopardy from a potential bank run.
Elliot tweeted on March 11 that although the FDIC provides insurance for small deposits in American banks, it only covers around 9 trillion dollars of the total 17 trillion dollars of deposits. This means that the majority of deposits held in U.S. banks are not insured, with coverage rates being around 50% across most institutions and higher at credit unions (but still not above 100%).
As of February 2023, the Federal Reserve reported that small banks in the United States held a total of $6.8 trillion in assets and $680 billion in equity. If something happened to one of these tech banks, it could lead to a situation where thousands of smaller banks would be in danger, Elliot argued, making it an issue that affects everyone on Main Street.
Total assets, small, domestically chartered commercial banks in the United States below
Elliot’s remarks were just one of numerous others appearing on social platforms over the weekend as people worried about the potential fate of California bank. A petition started by Y Combinator CEO Garry Tan states that almost 40,000 depositors at Silicon Valley Bank are small businesses. The petition declares that “If swift action isn’t taken, over 100,000 people could soon lose their jobs,” and requests regulators “to step in and implement a backstop for depositors.”
The Federal Deposit Insurance Corporation (FDIC) and the Federal Reserve are allegedly in talks to devise a financial reserve designed to secure deposits at banks that are having difficulties. This move is in response to the failure of SVB, with the goal of restoring confidence among depositors and minimizing alarm.
Silicon Valley Bank is one of the top 20 largest banks in America, offering financial services to a lot of venture capital firms that are crypto-friendly. Assets held by blockchain venture capitalists at the bank amounted to over $6 billion, with Andreessen Horowitz’s totaling $2.85 billion, Paradigm’s amounting to $1.72 billion and Pantera Capital’s adding up to $560 million.
