Regulators have called for Silicon Valley Bank to find a buyer as there are concerns about the collapse of the industry

By Lananh Nguyen and Pete Schroeder

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

Startup-focused lender SVB Financial Group on Friday became the biggest bank to fail since the 2008 financial crisis, rolling markets and leaving companies and investors with billions of dollars on the hook.

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

Reuters was unable to determine whether a deal was imminent.

Some industry executives said such a deal would be big for any bank and would likely require regulators to provide special guarantees and other concessions for any buyer.

The Santa Clara, Calif.-based lender, with $209 billion in assets, was the 16th largest U.S. bank, listing potential buyers who could do a deal relatively briefly over the weekend, they said on condition of anonymity because the situation is fluid. . The US Federal Reserve and the FDIC are weighing the creation of a fund that would allow regulators to backstop more deposits at troubled banks, Bloomberg reported.

Regulators discussed the new special vehicle in talks with banking executives and hoped that such measures would reassure depositors and help prevent any panic, the report said. However, it was unclear whether regulators would have the political support to throw a lifeline to banks for Silicon Valley startups and investors. The Fed and the FDIC did not immediately respond to requests for comment.

The White House said Saturday that President Joe Biden spoke with California Governor Gavin Newsom about the bank and efforts to address the situation. “Everyone is working with the FDIC to stabilize the situation as quickly as possible,” Newsom said Saturday.

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Spotlight on other banks Some analysts and prominent investors have warned that if there is no resolution by Monday, other banks could come under pressure as people worry about their deposits.

“The good news is that SVB-style bankruptcies are unlikely to extend to large banks,” risk and financial advisory firm Kroll said in a research note.

However, smaller community banks may face problems and the risk is “much higher if SVB’s uninsured depositors are not made whole 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 the FDIC’s guarantee, which is capped at $250,000.

Billionaire hedge fund manager Bill Ackman said in a tweet Saturday that failure to protect all depositors could lead to uninsured deposit withdrawals from other institutions as well. “These withdrawals will drain liquidity from community, regional and other banks and begin the destruction of these vital institutions,” Ackman warned. Kyle Bass, founder and chief investment officer at Hayman Capital Management, told Reuters the Fed would have to “make arrangements” for SVB by Sunday evening before markets open in Asia.

“And they have to assure depositors that due to this merger they will be paid in full and stability will be restored in 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%, bringing losses for the week to 18%, the worst week since 2009. Signature Bank fell about 23%, while San Francisco-based First Republic Bank fell 15%. Western Alliance Bancorp fell 21% and PacWest Bancorp fell 38% after these stocks were closed several times 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 try to pre-emptively raise capital or do their own deals to strengthen their balance sheets, 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 be left with a portion of the funds the FDIC can raise by selling the bank’s assets.

Some experts, however, see the results of the recent decline as limited.

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

(Reporting by Lanan Nguyen, Paritosh Bansal, Tatiana Bautzer, Nupur Anand and Ira Yosebashvili in New York and Pete Schroeder and Jason Lange in Washington, Kanjik Ghosh and Akanksha Khushi in Bengaluru; Writing by Megan Davis; Editing by FreeJam)