© Reuters. A man puts a sign on the door of Silicon Valley Bank as a bystander looks on at the bank’s headquarters in Santa Clara, California, U.S. March 10, 2023. REUTERS/Nathan Frandino
By Lananh Nguyen and Pete Schroeder
NEW YORK (Reuters) – Some financial industry executives and investors grew increasingly concerned on Saturday that the collapse of Silicon Valley Bank could have a ripple effect on other regional U.S. banks if regulators did not find a buyer. over the weekend to protect uninsured deposits.
Startup-focused lender SVB Financial Group on Friday became the largest bank to fail since the 2008 financial crisis, roiling markets and stranding billions of dollars belonging to companies and investors.
The Federal Deposit Insurance Corporation (FDIC), which has been appointed a receiver, was trying to find another bank over the weekend that was willing to merge with Silicon Valley Bank, people familiar with the case said Friday. affair.
Reuters could not determine whether a deal was expected.
Some industry executives said such a deal would be substantial for any bank and would likely require regulators to grant special guarantees and other concessions to any buyer.
With $209 billion in assets, the Santa Clara, California-based lender was the 16th-largest bank in the US, so the list of potential buyers who could close a deal over a weekend is relatively short. short, they said on condition of anonymity because the situation is changing. . The US Federal Reserve and the FDIC were considering creating a fund that would allow regulators to support more deposits at troubled banks, Bloomberg reported.
Regulators discussed the new special vehicle in talks with bank executives and hoped such a move would reassure depositors and help contain panic, according to the report. It was unclear, however, whether regulators would have political support to throw a lifeline at the bank, which catered to Silicon Valley startups and investors. The Fed and FDIC did not immediately respond to a request for comment.
The White House said on Saturday that President Joe Biden had spoken with California Gov. Gavin Newsom about the bank and efforts to address the situation. “Everyone is working with the FDIC to stabilize the situation as quickly as possible,” Newsom said Saturday.
FOCUS ON OTHER BANKS Some prominent analysts and investors warned that without a resolution by Monday, other banks could come under pressure if people worry about their deposits.
“The good news is that an SVB-style failure is unlikely to spread to the big banks,” risk and financial advisory firm Kroll said in a research note.
However, small community banks could face problems and the risk is “much higher if SVB’s uninsured depositors do not recover and have to reduce their deposits,” Kroll added. Silicon Valley Bank had an unusually high level of deposits that were not covered by FDIC guarantees, which are capped at $250,000.
Billionaire hedge fund manager Bill Ackman said in a tweet on Saturday that the failure to protect all depositors could lead to the withdrawal of uninsured deposits from other institutions as well. “These withdrawals will drain the liquidity of community, regional and other banks and begin the destruction of these important institutions,” Ackman warned. Kyle Bass, founder and chief investment officer of Hayman Capital Management, told Reuters the Fed needed to “arrange a marriage” for SVB on Sunday night before markets in Asia opened.
“And they have to assure depositors that they will be paid in full because of this merger and restore stability to the banking system,” he added.
Shares of smaller and regional banks were hit hard on Friday. The regional banks index fell 4.3%, bringing its weekly loss to 18%, its worst week since 2009. signature bank (NASDAQ:) fell about 23% while San Francisco-based Bank of the First Republic (NYSE:) fell 15%. Western Alliance (NYSE:) Bancorp fell 21% and PacWest Bancorp fell 38% after those shares were halted multiple times due to volatility. charles schwab (NYSE:) Corp plunged more than 11%. Signature Bank, First Republic Bank, PacWest Bank and Charles Schwab did not immediately respond to requests for comment. Western Alliance Bank declined to comment.
Some banks may seek to preemptively raise capital to strengthen their balance sheets or try to strike deals on their own, industry executives said. When IndyMac and Washington Mutual collapsed in 2008, the FDIC found other companies to take over the assets and keep the deposits intact. If no buyer is found for SVB, uninsured depositors will likely pocket a portion of the funds the FDIC can raise by selling the bank’s assets.
Some experts, however, see the consequences of the latest collapse as limited.
“We do not see this as the beginning of a broader threat to the safety and soundness of the banking system,” TD Cowen analyst Jaret Seiberg said on Friday. “Silicon Valley had a unique business model that was less reliant on retail deposits than a traditional bank.”
