The failure of Silicon Valley Bank could spark a run on other regional and mid-sized banks across the country, as wealthy individuals rush to pull their money out of accounts too large for FDIC coverage and flee to larger, more stable institutions amid fears the risk could be systemic, sources told The New York Post.
See: Silicon Valley Bank branches closed by regulator in biggest bank failure since Washington Mutual
“Small regional banks are done,” one banking source said. “Everyone is going to want to put their money in JPMorgan or Bank of America.”
If a buyer steps in this weekend to scoop up SVB SIVB, -60.41%, which catered to start-ups in tech and other industries, it could avert a disaster.
But potential buyers are skittish about taking over the troubled bank without backing from the federal government.
There’s simply too much uncertainty and risk associated with a deal unless the Feds step in, people with knowledge of buyers’ thinking told The Post.
“My instinct is either someone buys the whole thing with concessions from government or it goes to receivership,” one banker close to the negotiations told The Post.
“No one wants to do the deal without a government backstop,” a private equity insider echoed. “The government needs to prepackage a deal, like they did with Lehman.”
Another banker pointed out the Lehman Brothers collapse is still being tied up nearly 15 years after its failure.
“No one wants to take on that kind of headache.”
One top investment bank sent a note to clients advising what could happen if no buyers steps in, according to a transcription reviewed by The Post.
The note outlined how the FDIC is spending the weekend assessing the value of SVB’s assets. It will pay out up to $250,000 in insurance coverage for accounts at that level or below on Monday. The agency will also make a payment, called an advanced dividend, to uninsured depositors as quickly as possible.
“The rest may take anywhere from 60 days to 2 years to get paid out,” the note said, adding that companies waiting for payouts will find investors and lenders available to try to finance the amounts the FDIC says they will get. Ultimately SVB clients could get 80 to 90 cents for each dollar they had on deposit, but it could take years for that to happen.
And that may be too late for many small businesses with ties to the bank.
The wrangling behind the scenes Saturday took place as small businesses across the country, from Etsy ETSY, -1.63% sellers to NYC-based Camp toy stores, faced cash crunches because they can’t get at their money while the bank is shuttered.
Camp stores sent a desperate message to customers telling them to use BANKRUN as a promo code to buy up products because they need cash after their funds got locked up and possibly lost in the collapse of SVB. Etsy sellers took to TikTok to express their fears after they were told funds won’t be transferred to their accounts until Monday at the earliest.
It’s also spreading to the crypto trading sector.
Saturday, the value of USD Coin, a major cryptocurrency that’s supposed to be equal to the US dollar, fell amid selling sparked by news that the company behind it, Circle Internet Financial, had $3.3 billion in SVB.
See: Stablecoin USDC falls below $1, faces $3.3 billion exposure to Silicon Valley Bank
The digital currency, known as a stablecoin, is key to crypto trading, a sector that’s still reeling from the November collapse of FTX.
Separately, the bank’s branches in the UK were shut down.
The Bank of England said it would place Silicon Valley Bank’s U.K. subsidiary into insolvency procedure late Friday, and that it would stop making payments and accepting deposits.