Regulators urged to find Silicon Valley Bank buyer as industry frets over fallout

By Lananh Nguyen and Pete Schroeder

NEW YORK (Reuters) – Some financial industry executives and investors grew concerned on Saturday that the collapse of Silicon Valley Bank could have a domino effect on other regional U.S. banks if regulators did not find a buyer this weekend to protect uninsured deposits.

Startup-focused lender SVB Financial Group on Friday became the largest bank to fail since the 2008 financial crisis, rattling markets and leaving billions of dollars belonging to businesses and investors stranded.

The Federal Deposit Insurance Corporation (FDIC), which was appointed receiver, was trying to find another bank over the weekend that would be willing to merge with Silicon Valley Bank, people familiar with the matter said Friday.

Reuters was unable to determine whether a deal was forthcoming.

Some industry executives said such a deal would be important for any bank and would likely force regulators to give special guarantees and other allowances to 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 close a deal in one weekend relatively short, have- they said on condition of anonymity as the situation is evolving. . The US Federal Reserve and the FDIC were considering the creation of a fund that would allow regulators to support more deposits at troubled banks, Bloomberg reported.

Regulators discussed the new special vehicle in conversations with bank executives and hoped such a move would reassure depositors and help contain any panic, the report said. However, it was unclear whether regulators would have political support to throw a lifeline at the bank, which was aimed at Silicon Valley startups and investors. The Fed and 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 remedy the situation. “Everyone is working with the FDIC to stabilize the situation as quickly as possible,” Newsom said Saturday.

SPOTLIGHT ON OTHER BANKS Some leading analysts and investors have warned that without a resolution by 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 spread to large banks,” risk management and finance consultancy Kroll said in a research note.

However, smaller community banks could face problems and the risk is “much higher if uninsured SVB depositors are not cured 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 capped at $250,000.

Billionaire hedge fund manager Bill Ackman said in a tweet on Saturday that failing to protect 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 must “arrange a marriage” for SVB by Sunday evening, before markets open in Asia.

“And they need to assure depositors that they will be fully paid through this merger and restore stability to 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%, taking its loss for the week to 18%, its worst week since 2009. Signature Bank fell around 23%, while First Republic Bank, based in San Francisco, fell 15%. Western Alliance Bancorp fell 21% and PacWest Bancorp fell 38% after these stocks were repeatedly halted due to volatility. Charles Schwab Corp fell 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 raise capital preemptively to strengthen their balance sheets or try to strike their own deals, industry executives 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 end up with some of the funds the FDIC can raise by selling the bank’s assets.

Some experts, however, consider the fallout from the latest collapse to be limited.

“We don’t see this as the start of a broader threat to the security and soundness of the banking system,” TD Cowen analyst Jaret Seiberg said Friday. “Silicon Valley had a unique business model that relied less on retail deposits than a traditional bank.”

(Reporting by Lananh Nguyen, Paritosh Bansal, Tatiana Bautzer, Nupur Anand and Ira Iosebashvili in New York and by Pete Schroeder and Jason Lange in Washington, Kanjyik Ghosh and Akanksha Khushi in Bengaluru; Writing by Megan Davies; Editing by Jamie Freed)

Leave a Comment