FDIC and Fed consider special funds after SVB collapse.
Regulators aim to contain the repercussions for other banks.
The Federal Deposit Insurance Corp. (FDIC) and the Federal Reserve are considering the establishment of a fund that could enable regulators to support a greater number of bank deposits in case of financial difficulties, particularly in the wake of the collapse of Silicon Valley Bank.
People familiar with the matter have reported that regulators have been discussing the proposed new special vehicle with banking executives. Establishing such a fund aims to instill confidence in depositors and limit any potential panic. The sources, who preferred to remain anonymous as the talks were not public, revealed this information.
A spokesperson for the Federal Reserve chose not to provide a comment. Meanwhile, their representatives did not immediately answer requests for comment from the FDIC.
Creating the special fund is one of the measures the agency considers in its contingency planning as worries escalate over the financial stability of smaller banks catering to the venture capital and startup sectors.
According to anonymous sources familiar with the matter, the FDIC contacted officials from various small- and mid-sized banks, such as First Republic Bank, over the weekend to inquire about their financial status. The discussions were confidential, and the sources requested anonymity.
Following a decline of 15% on Friday, First Republic’s stock continued to slide, reaching a total drop of 34% for the week. In a statement to investors, the company reassured that its liquidity remained robust and had a well-diversified deposit base.
Requests for comment on the matter were not immediately answered by representatives from the First Republic, based in San Francisco and the FDIC.
In the aftermath of Silicon Valley Bank’s collapse, several other regional banks experienced a significant drop in their stock prices, leading them to issue statements assuring their financial stability.
After its stock plummeted to its lowest level since November 2020 on Friday, Western Alliance Bancorp, based in Phoenix, highlighted its robust liquidity and strong deposits as indicators of its financial stability.
On the day that PacWest Bancorp’s shares fell by 38%, CEO Paul Taylor stated that the company is a commercially strong and diversified bank.
Requests for comment made to representatives of Western Alliance and PacWest were not responded to immediately.
After a tumultuous week that included an unsuccessful attempt to raise capital and a withdrawal of funds from startups that had helped its growth, Silicon Valley Bank collapsed on Friday, becoming the largest US lender to fail in over a decade. The bank, which was valued at over $40 billion just last year, was taken over by California state regulators.