Regulators urged to find Silicon Valley Bank buyer as industry frets about fallout
Some financial industry executives and investors were growing increasingly concerned on Saturday that the collapse of Silicon Valley Bank could have a domino effect on other U.S. regional banks if regulators did not find a buyer over the weekend to protect uninsured deposits.
Startup-focused lender SVB Financial Group became the largest bank to fail since the 2008 financial crisis on Friday, roiling markets and leaving billions of dollars belonging to companies and investors stranded, Reuters reported.
The Federal Deposit Insurance Corporation (FDIC), which was appointed receiver, was trying to find another bank over the weekend that was willing to merge with Silicon Valley Bank, people familiar with the matter said on Friday.
Spotlight on other banks
Some analysts and prominent investors warned that without a resolution by Monday, other banks could come under pressure if people worried about their deposits.
"The good news is it is unlikely an SVB-style bankruptcy will extend to the large banks," risk and financial advisory firm Kroll said in a research note.
However, small community banks could face issues and the risk is "much higher if uninsured depositors of SVB aren't made whole and have to take a haircut on their deposits," Kroll added.
Silicon Valley Bank had an unusually high level of deposits that were not covered by the FDIC's guarantees, which are capped at $250,000.
Some industry executives said such a merging deal would be sizeable for any bank and would likely require regulators to give special guarantees and make other allowances for any buyer.
According to CNBS, more than three hundred venture capital firms have signed a joint statement vowing to do business again with Silicon Valley Bank if it is “purchased and appropriately capitalized,” after the financial institution failed.
With $209b in assets, the Santa Clara, California based lender was the 16th largest U.S. bank, making the list of potential buyers who could pull off a deal over a weekend relatively short, they said on condition of anonymity because the situation is in flux.
The U.S. Federal Reserve and the FDIC were weighing the creation of a fund that would allow regulators to backstop more deposits at banks that run into trouble, Bloomberg reported.
Regulators discussed the new special vehicle in conversations with banking executives and hoped such a measure would reassure depositors and help contain any panic, the report said.
However, it was not clear if regulators would have political support to throw a lifeline to the bank, which catered to Silicon Valley startups and investors.
The White House said on Saturday that President Joe Biden had spoken with California Governor Gavin Newsom about the bank and efforts to address the situation.
Global dominos
In Britain, the government said it is working "at pace" on a plan to prevent UK tech firms caught in the collapse of Silicon Valley Bank running out of cash.
The Treasury said it wanted to "minimise damage to some of our most promising companies in the UK" after the US bank's failure.
US regulators shut down the lender on Friday in what is the largest failure of a US bank since 2008.
The bank's UK subsidiary will be put into insolvency from Sunday evening.
Prime Minister Rishi Sunak, Chancellor Jeremy Hunt and Bank of England Governor Andrew Bailey "were up late last night" and have been "working through the weekend to come up with a solution" to the collapse of Silicon Valley Bank UK, Hunt said.