Feds could guarantee all bank deposits in Silicon Valley: report

Hours before the start of the Asian trading day, top US regulators considered guaranteeing all deposits at Silicon Valley Bank to prevent a broader panic in the global financial sector Washington Post reported late Sunday.

With the Federal Reserve, the US Treasury, the FDIC and the White House, an outright buyer for the failed bank is the best case scenario. “Most bank failures are resolved in this way, allowing depositors not to lose money,” they said post. The FDIC reportedly started an auction for SVB assets yesterday, with final bids due at 2 p.m. EST.

That leaves them less than six hours before trading markets open in Shanghai and Tokyo, where the global ramifications of the bank’s collapse late last week are becoming clear.

One of the options on the table involves providing a “backstop” on all uninsured deposits at Silicon Valley Bank, which post reports, citing an anonymous source, that federal officials are considering a “legally and politically justifiable way to protect all uninsured deposits.”

Such a move would not technically be a bailout – something Treasury Secretary Janet Yellen fears excluded over the weekend – as it would tap into an insurance fund that US banks have deposited in rather than resorting to taxpayers’ money.

Silicon Valley Bank was among the 20 largest banks in the US when it went bust on Friday after a bank was robbed by customers. California State Regulators placed the bench under the control of the FDIC, which in turn created a new entity – the Deposit Insurance National Bank of Santa Clara – through which the remaining assets will be managed.

The FDIC guarantees deposits with member banks for up to $250,000, but many of Silicon Valley Bank’s customers held significantly larger balances. Targeting tech companies and startups, the bank billed itself as “the financial services partner for the innovation economy,” and many companies invested the proceeds of entire funding rounds.

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According to Silicon Valley Bank’s most recent regulatory filings, more than 85% of its deposits were uninsured.

Silicon Valley Bank’s Twitter account, @SVB_Financial, was also in attendance turned off on Sunday.

In order to proceed with the “backstop,” Silicon Valley Bank’s failure would need to be classified as part of “systemic risk” and approved by multiple regulators. This is a high bar as many financial industry analysts were confident in the stability of the US financial sector despite the collapse of the Silicon Valley bank.

“This is not a systemic event — this is a mid-sized bank that has been poorly run,” said University of Chicago economics professor Anil Kashyap post. “It might be a bit messy, but that’s different than when someone at the core of the financial system stops making payments to someone else at the core of the system and then the core implodes.”

Others reinforced their criticism of federal regulators, claiming that the collapse of Silicon Valley Bank exposed flaws in their practice.

The post The report is attributed to three people with knowledge of the matter, who spoke on condition of anonymity to describe private deliberations. None of the agencies cited commented on the recording.