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

NEW YORK Some financial industry executives and investors were growing increasingly concerned on Saturday that the collapse of Silicon Valley Bank could have a domino effect on other US regional banks if regulators did not find a buyer at the weekend to protect uninsured deposits.

Start-up-focused lender SVB Financial Group, the parent organisation of Silicon Valley Bank (SVB), on Friday became the largest bank to fail since the 2008 financial crisis, roiling markets and leaving billions of dollars belonging to companies and investors stranded.

The Federal Deposit Insurance Corporation (FDIC), which was appointed receiver, was at the weekend trying to find another bank that was willing to merge with SVB, sources familiar with the matter said on Friday.

Reuters was unable to determine if a deal was forthcoming.

Some industry executives said such a deal would be sizeable for any bank and would most likely require regulators to give special guarantees and make other allowances for any buyer.

With US$209 billion (S$282.4 billion) in assets, the Santa Clara, California-based lender was the 16th-largest US bank, making the list of potential buyers who could pull off a deal over a weekend relatively short, the executives 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 backstop more deposits at banks that run into trouble, Bloomberg reported.

Regulators discussed the new special vehicle in conversations with banking executives and hoped such a measure would reassure depositors and help contain panic, the report said.

However, it was not clear if regulators would have political support to throw a lifeline to the bank, which catered to Silicon Valley start-ups and investors.

The Fed and FDIC did not immediately respond to a request for comment.

The White House said on 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 FDIC to stabilise the situation as quickly as possible, Mr Newsom said on Saturday. More On This Topic Silicon Valley Bank is largest failure since 2008 financial crisis, billions stranded Silicon Valley Bank shutdown sends shockwaves through US start-up community Spotlight on other banks

Some analysts and prominent investors warned that without a resolution by Monday, other banks could come under pressure if people were worried about their deposits.

The good news is it is unlikely an SVB-style bankruptcy will extend to the large banks, risk and financial advisory firm Kroll said in a research note.

However, small community banks could face issues and the risk is much higher if uninsured depositors of SVB arent made whole and have to take a haircut on their deposits, Kroll added.

SVB had an unusually high level of deposits that were not covered by the FDICs guarantees, which are capped at US$250,000.

Billionaire hedge fund manager Bill Ackman said in a tweet on Saturday that failure to protect all depositors could lead to the withdrawal of uninsured deposits from other institutions as well.

These withdrawals will drain liquidity from community, regional and other banks and begin the destruction of these important institutions, Mr Ackman warned.

Mr Kyle Bass, founder and chief investment officer of Hayman Capital Management, told Reuters that the Fed needed to arrange a marriage for SVB by Sunday evening, before markets opened in Asia.

And theyve got to assure depositors that they will be paid in full because of this merger, and restore stability in the banking system, Mr Bass added.

Regional and smaller banks shares were hit hard on Friday. The S&P 500 regional banks index dropped 4.3 per cent, bringing its loss for the week to 18 per cent, its worst week since 2009.

Some experts, however, see the fallout from the latest collapse as limited. We do not see this as the start of a broader threat to the safety and soundness of the banking system, TD Cowen analyst Jaret Seiberg said on Friday. Silicon Valley (Bank) had a unique business model that was less dependent on retail deposits than a traditional bank. REUTERS More On This Topic Silicon Valley Bank staff offered 45 days of work at 1.5 times pay What caused Silicon Valley Banks failure?