As the news continues to update the world on the demise of Silicon Valley Bank (SVB), some experts believe there’s potential for a much bigger fallout. Between various regulators, investors, financial experts, and depositors, there’s a feeling that what is happening with SVB
could trickle down and infect other banks and financial institutions.
The US Federal Reserve and the Federal Deposit Insurance Corporation (FDIC) are closely examining this ongoing situation and considering their next moves, feeling that any error in judgment might be cataphoric. Bob Eliot, ex-Bridgewater executive and CEO of Unlimited, says that small banks hold about one-third of all deposits in the US, and the other fifty percent are entirely uninsured.
The FDIC only covers small deposits amounting to $9 trillion out of the nearly $17 trillion currently outstanding. Coverage is about 50% across many financial institutions, with credits unions typically much higher. Estimations state that small banks throughout the US are holding $6.8 trillion in assets and $680 billion in equity as of February 2023.
The failure of SVB could cause a chain reaction, putting thousands of small banks at risk of a run. Y Combinator CEO Garry Tan started a petition stating regulators need to step in and institute a backstop for depositors, with over 40,000 depositors in SVB being small businesses which could cause over 100,000 people to lose their jobs.
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