Prominent Silicon Valley personalities and executives have been hitting the giant red “PANIC' button, saying that if Washington does not come to the rescue of Silicon Valley bank’s depositors, more bank runs are likely.
“On Monday 100,000 Americans will be lined up at their regional bank demanding their money — most will not get it,” Jason Calacanis wrote on Twitter. Calacanis, a tech investor, has been close with Elon Musk, who recently took over the social media network.
Its failure has caused more than $150 billion in deposits to be now locked up in receivership, which means startups and other businesses may not be able to get to their money for a long time. Further, it appears that Silicon Valley Bank’s failure appears to be a unique situation where the bank’s executives made poor business decisions by buying bonds just as the Federal Reserve was about to raise interest rates, and the bank was singularly exposed to one particular industry that has seen a severe contraction in the past year.
While highly unusual, it was clear that a bank failure this size was causing worries. Treasury Secretary Janet Yellen as well as the White House, has been “watching closely” the developments; the governor of California has spoken to President Biden; and bills have now been proposed in Congress to up the FDIC insurance limit to temporarily protect depositors.
Sen. Mark Warner, D-Virginia, said on ABC's “This Week” that it would be a “moral hazard” to potentially bail out Silicon Valley's uninsured depositors. Moral hazard was a term used often during the 2008 financial crisis for why Washington shouldn't have bailed out Lehman Brothers. Todd Phillips, a consultant and former attorney at the FDIC, said he expects that uninsured depositors will likely get back 85% to 90% of their deposits if the sale of the bank’s assets is done in an orderly manner. He said it was never the intention of Congress to protect business accounts with deposit insurance — that the theory was businesses should be doing their due diligence on banks when storing their cash.
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