Mar 12, 2023

Fed/FDIC Decisions on SVB Pose Risk of Bank Run Trillions in Size

The future of Silicon Valley Bank (SVB) is in question, and the decisions made by the Federal Reserve and Federal Deposit Insurance Corporation (FDIC) could have far-reaching implications for regional banks across the United States. Bob Elliot, former Bridgewater executive and CEO of investment firm Unlimited, has warned that trillions of dollars are at risk of a bank run.

In a tweet posted on March 11, Elliot noted that a third of all deposits in the US are held in small banks and about half of them are uninsured. He pointed out that the FDIC only insures small deposits, covering around 9 trillion of the nearly 17 trillion of outstanding deposits. Furthermore, the coverage rate for most institutions is roughly 50%, with credit unions typically having higher coverage.

Small banks in the US had $6.8 trillion in assets and $680 billion in equity as of February 2023, according to Fed data. Elliot warned that a failure on the tech bank could put thousands of small banks at risk of a run, making the SVB situation a “main street problem.”

The fear surrounding the future of the California bank has been echoed on social media channels, with YCombinator CEO Garry Tan launching a petition that claims nearly 40,000 of all depositors at Silicon Valley Bank are small businesses. He warns that if swift action isn’t taken, over 100,000 people could soon lose their jobs.

In response to the SVB collapse, the FDIC and the Fed are reportedly discussing creating a fund to backstop more deposits at troubled banks, according to a Bloomberg report. This fund is intended to reassure depositors and reduce panic.

Silicon Valley Bank is one of the top 20 largest banks in the US, providing banking services to many crypto-friendly venture firms. Assets from blockchain VCs totaled more than $6 billion at the bank, including $2.85 billion from Andreessen Horowitz (a16z), $1.72 billion from Paradigm, and $560 million from Pantera Capital.

The potential collapse of SVB has left many in the web3 space concerned. With the rise of NFTs, crypto, and web3, many businesses are turning to NFT promotion and marketing services to help sell their NFTs. NFT marketing agencies are now in high demand, as well as web3 agencies that specialize in helping businesses promote and sell their NFTs on Twitter and other social media platforms. As the web3 space continues to evolve, it is likely that the demand for these services will only increase.

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