Silicon Valley bank collapse could trigger regional bank run: sources

A Silicon Valley bank failure could spark raids on other regional and mid-sized banks across the country as wealthy people rush to withdraw their money from accounts too large to be covered by the FDIC and flee to larger, more stable institutions for fear of risk. Sources told The Post that this could be systemic.

“Small regional banks are done with,” said one banking source. “Everyone is going to want to put their money in JPMorgan or Bank of America.”

If a buyer shows up this weekend to buy SVB, which has catered to startups in tech and other industries, it could avert disaster.

But potential buyers are wary of a troubled bank without federal government support.

There is simply too much uncertainty and risk involved in the deal unless the feds step in, people familiar with the buying mindset told The Post.

“It seems to me that either someone buys it all with concessions from the government, or it goes into receivership,” one banker close to the talks told The Post.

“No one wants to make a deal without government support,” echoed one private equity insider. “The government should prepare the deal in advance, like they did with Lehman.”

Another banker pointed out that the collapse of Lehman Brothers was still unfinished almost 15 years after its collapse.

“No one wants to take on such a headache.”

According to a transcript published by The Post, a leading investment bank sent a note to customers telling them what could happen if buyers did not intervene.

The note outlines how the FDIC spends the weekend assessing the value of SVB assets. On Monday, the company will pay out up to $250,000 in insurance coverage for accounts of this level or below. The agency will also make a payment, called an upfront dividend, to uninsured depositors as quickly as possible.

“Paying the rest could take anywhere from 60 days to 2 years,” the note said, adding that companies awaiting payouts will find investors and lenders willing to try to fund the amounts the FDIC says they will receive. Ultimately, SVB customers could earn 80 to 90 cents for every dollar they had in deposit, but that could take years.

And it may be too late for many bank-related small businesses.

Saturday’s behind-the-scenes controversy came as small businesses across the country, from Etsy sellers to New York’s Camp toy stores, ran out of cash because they can’t get their money while the bank is closed.

Camp stores sent out a desperate message to shoppers telling them to use BANKRUN as a promo code to buy products because they need cash after their funds were blocked and possibly lost in the SVB crash. Etsy sellers have reached out to TikTok to express their concerns after they were told the funds would not be transferred to their accounts until Monday at the earliest.

It also extends to the crypto trading sector.

On Saturday, the value of USD Coin, the main cryptocurrency, which should be equal to the US dollar, fell on sales caused by the news that the company behind it, Circle Internet Financial, has $3.3 billion in SVB, according to The Wall Street Journal. The digital currency known as the stablecoin is the key to crypto trading, a sector still reeling from the November FTX crash.

Separately, the bank’s branches in the UK were closed.

The Bank of England said it would file insolvency proceedings against a UK subsidiary of Silicon Valley Bank late Friday and stop making payments and taking deposits, The Journal reported.