The US is discussing a fund to prop up deposits if more banks fail

(Bloomberg) – The Federal Deposit Insurance Corp. and the Federal Reserve are considering creating a fund that would allow regulators to secure more deposits at banks struggling after the Silicon Valley bank collapse.

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Regulators have discussed the new special vehicle in talks with bank executives, according to people familiar with the matter. The hope is that the establishment of such a vehicle would reassure depositors and help contain any panic, people said. They asked not to be named as the talks were not public.

A Federal Reserve official declined to comment. FDIC officials did not immediately respond to a request for comment.

The vehicle is part of the agency’s contingency planning as concerns spread over the health of smaller banks focused on venture capital and startup communities.

Separately, the FDIC on Saturday questioned officials from several small and medium-sized lenders, including First Republic Bank, about their financial condition, according to people with knowledge of the calls, who asked not to be identified because the calls were private.

Fears spread

First Republic stock was down 15% on Friday, extending the bank’s decline to 34% for the week. The company told investors in a statement that its liquidity remains strong and its deposit base is highly diversified.

Officials from the San Francisco-based First Republic and the FDIC did not immediately respond to requests for comment about the interactions.

A number of other regional lenders also saw their shares fall following the SVB collapse, prompting their own assurances of financial stability.

Phoenix-based Western Alliance Bancorp touted its strong deposits and resilient liquidity after its stock fell to its lowest level since November 2020 on Friday.

On the same day as PacWest Bancorp’s shares fell 38%, chief executive officer Paul Taylor said the company was a “high-performing, well-diversified” commercial bank.

Western Alliance and PacWest officials did not immediately respond to requests for comment.

SVB on Friday became the largest U.S. lender to fail in more than a decade after a tumultuous week that saw an unsuccessful attempt to raise capital and a cash flight from the startups fueling its rise. California state watchdogs took possession of the bank, which was valued at more than $40 billion last year.

–Assisted by Katanga Johnson, Heather Perlberg and Lydia Beyoud.

(Updates with FDIC requests to regional banks from paragraph 5.)

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