Several regional lenders have seen stocks plunge, sparking fears that more insolvencies could follow.
US regulators are discussing a mechanism which would help avoid a repeat of the Silicon Valley Bank (SVB) insolvency at other lenders, Bloomberg reported on Saturday, citing sources close to the discussions.
According to the report, the US Federal Reserve and the Federal Deposit Insurance Corporation (FDIC) could create a fund that would allow regulators to backstop more deposits at banks that are facing problems. A number of lenders focused on the venture capital and startup communities have already seen their stocks plunge following the news of SVB’s collapse, sparking fears about their financial health.
Regulators see the mechanism as contingency planning to avoid panic, and have reportedly already discussed the plan with banking executives. No further details have been disclosed, and no official comment regarding the regulation has been made.
SVB, a major lender focused on tech and startups which previously ranked in the top-20 US banks, imploded on Friday after what analysts called “a classic case of bank run.” Worried about the state of the bank, depositors rushed to withdraw funds, which saw SVB’s shares crash and forced the FDIC to shut the lender down.
Regulators have taken control of SVB’s deposits and transferred the assets to a newly created entity, the Deposit Insurance Bank of Santa Clara. The bank’s offices are set to reopen on Monday to allow insured depositors to withdraw their money. However, some 89% of SVB’s $175.4 billion in deposits were not insured, according to the FDIC, meaning there is uncertainty over when the bulk of customers could see their money.
This article was originally published by RT.