Silicon Valley Bank

I am seeing estimates that over 97% of the funds are not FDIC insured, and many of those accounts are held by start-ups.  An outright failure would be calamitous for the Silicon Valley start-up ecosystem.  Likely the best outcome is if a major bank steps up and buys the thing, rendering depositors whole.  Without such a buyout, regulators are in an awkward position.  Leaving depositors hanging might generate additional bank runs or financial market runs.  Making depositors whole, however, sets a crazy precedent (“in fact, we’re raising the guarantee to $10 million!).

So what exactly does the FDIC/Fed/Treasury have to do to get a deal consummated ASAP?  What kind of behind the scenes horsetrading will be involved?

Here is NYT coverage of the basic facts.  Note that every now and then the U.S. banking system is semi-insolvent, but matters work out because “on paper” losses do not have to be either realized or reported as such.  Remember the 1980s?  One danger is that if other banks start selling their bonds at a loss, the problems in the system will become increasingly transparent and compound themselves.  That is not the most likely scenario, but it is something to watch out for.  And here is the black humorous but not true take

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