By Lananh Nguyen and Pete Schroeder
NEW YORK (Reuters) – Some financial industry executives and investors were increasingly concerned on Saturday that the collapse of Silicon Valley Bank could have a domino effect on other regional U.S. banks if regulators do not found a buyer over the weekend to protect unsecured deposits.
SVB Financial Group, a startup-focused lender, on Friday became the biggest bank to fail since the 2008 financial crisis, which sent markets reeling and left billions of dollars owed to companies and investors.
The Federal Deposit Insurance Corporation (FDIC), which has been appointed receiver, was trying to find another bank over the weekend that was willing to merge with Silicon Valley Bank, people familiar with the matter said on Friday.
Reuters was unable to determine whether a deal was imminent.
Some industry executives said such a deal would be too big for any bank and would likely require regulators to give special guarantees and make other allowances for any buyer.
With $209 billion in assets, the Santa Clara, Calif.-based lender was the 16th largest U.S. bank, making the list of potential buyers who could do a deal in a relatively short weekend, they said on condition of anonymity because the situation is in flux. . The US Federal Reserve and the FDIC were weighing the creation of a fund that would allow regulators to support more deposits in troubled banks, Bloomberg reported.
Regulators have discussed the new special vehicle in conversations with bank executives and hope that such a measure will reassure depositors and help contain any panic, the report said. However, it was unclear whether regulators had the political backing to throw a bailout at the bank, which has welcomed Silicon Valley startups and investors. The Fed and the FDIC did not immediately respond to a request for comment.
The White House said Saturday that President Joe Biden had spoken with California Governor Gavin Newsom about the bank and efforts to address the situation. “Everyone is working with the FDIC to stabilize the situation as quickly as possible,” Newsom said Saturday.
SPOTLIGHT ON OTHER BANKS Some prominent analysts and investors warned that without a resolution on Monday, other banks could come under pressure if people worry about their deposits.
“The good news is that an SVB-style failure is unlikely to extend to the big banks,” financial advisory and risk firm Kroll said in a research note.
However, small community banks could face problems and the risk is “much higher if SVB’s uninsured depositors don’t meet and have to take a haircut on their deposits,” Kroll added. Silicon Valley Bank had an unusually high level of deposits that were not covered by FDIC guarantees, which are limited to $250,000.
Billionaire hedge fund manager Bill Ackman said in a tweet on Saturday that the lack of protection for all depositors could also lead to the withdrawal of uninsured deposits from other institutions. “These withdrawals will drain liquidity from community, regional and other banks and begin the destruction of these important institutions,” Ackman warned. Kyle Bass, founder and chief investment officer of Hayman Capital Management, told Reuters the Fed needed to “arrange a wedding” for SVB by Sunday evening, before markets opened in Asia.
“And they must assure depositors that they will be paid in full through this merger, and restore stability in the banking system,” he added.
Shares of regional and smaller banks were hit hard on Friday. The S&P 500 index of regional banks fell 4.3%, bringing its loss for the week to 18%, its worst week since 2009. Signature Bank fell about 23%, while First Republic Bank , based in San Francisco, fell 15%. Western Alliance Bancorp fell 21% and PacWest Bancorp fell 38% after those stocks were halted multiple times due to volatility. Charles Schwab Corp slumped more than 11%. Signature Bank, First Republic Bank, PacWest Bank and Charles Schwab did not immediately respond to requests for comment. Western Alliance Bank declined to comment.
Some banks may seek to preemptively raise capital to strengthen their balance sheets or try to do business of their own, industry leaders said. When IndyMac and Washington Mutual collapsed in 2008, the FDIC found other companies to take over the assets and keep the deposits intact. If no buyer is found for SVB, uninsured depositors will likely be left with a portion of any funds the FDIC may raise by selling the bank’s assets.
Some experts, however, see the fallout from the latest collapse as limited.
“We do not see this as the beginning of a broader threat to the safety and soundness of the banking system,” TD Cowen analyst Jaret Seiberg said Friday. “Silicon Valley had a unique business model that was less dependent on retail deposits than a traditional bank.”
(Reporting by Lananh Nguyen, Paritosh Bansal, Tatiana Bautzer, Nupur Anand and Ira Iosebashvili in New York and Pete Schroeder and Jason Lange in Washington, Kanjyik Ghosh and Akanksha Khushi in Bengaluru; Writing by Megan Davies; Editing by Jamie Freed)