Former Bridgewater executive and CEO of investment firm Unlimited, Bob Elliot, warns that decisions made by the Federal Reserve (Fed) and Federal Deposit Insurance Corporation (FDIC) regarding the fate of Silicon Valley Bank (SVB) could potentially trigger a bank run, risking trillions of dollars across small banks in the United States.
Elliot’s comments come as fear surrounds the future of SVB, one of the top 20 largest banks in the US, which provides banking services to many crypto-friendly venture firms. Assets from blockchain VCs total more than $6 billion at the bank, including funds from Andreessen Horowitz, Paradigm, and Pantera Capital.
In a Twitter thread, Elliot further explained that the actual coverage rate varies across different financial institutions, with most institutions having a coverage rate of around 50%. Credit unions, on the other hand, tend to have higher coverage rates due to their structure as member-owned cooperatives. While the FDIC is responsible for insuring deposits in banks, the National Credit Union Administration (NCUA) provides deposit insurance for credit unions.
Elliot’s comments about the limited FDIC coverage for bank deposits in the US have gained even more significance in light of recent events surrounding Silicon Valley Bank. Over the weekend, there was a growing sense of fear and concern among depositors of the California-based bank, with many taking to social media channels to voice their worries.
One particularly vocal supporter of Silicon Valley Bank depositors is Garry Tan, the CEO of startup accelerator YCombinator. Tan has created a petition urging regulators to step in and provide a backstop for depositors in the event of any potential bank failure. According to Tan’s petition, nearly 40,000 of all depositors at Silicon Valley Bank are small businesses, and over 100,000 people could potentially lose their jobs if swift action is not taken to address the situation.
Moreover, according to a recent report by Bloomberg, the FDIC and Fed are in early discussions in order to halt all the deposits in the troubled banks. This certain response of the two bodies is because of the recent collapse of SVB, which has raised a lot of concerns within the cryptocurrency industry.
