More Banks Will Fail Like Silicon Valley Bank, Former FDIC Chairman Predicts Story-level
William Isaac, former president of the Federal Deposit Insurance Corporation (FDIC), believes more bank failures are on the way amid the fallout from the collapse of Silicon Valley Bank (SVB).
SVB, the 16th-largest bank in the US and the go-to institution for tech startups for nearly 40 years, collapsed on Friday after frightened customers began a run on their deposits. That run started a downward spiral that ultimately led to the FDIC seizing control of the bank to figure out how to pay off its roughly $150 million in uninsured deposits. SVB’s rapid decline was the biggest for such an institution since the global financial crisis of 2008.
Politico published a report on Sunday about growing concerns in the financial sector about similar situations that could occur in the near future. Isaac, who served as FDIC chairman under Ronald Reagan from 1981 to 1985, told the outlet that he expects more bank failures soon, though he couldn’t guess how many and how big they would be.
As Politico noted, Isaac guided numerous banks into bankruptcy during his time at the FDIC. His tenure was marked by rising inflation and interest rates, and the former president compared that time with the current scenario.
“There is no doubt in my mind: there will be more. How many more? I don’t know. How big? I don’t know,” Isaac said. “I think it looks a lot like the 1980s.”
Politico also spoke with Sheila Bair, who served as chair of the FDIC from 2006 to 2011, overseeing bank failures and other melees during the global financial crisis.
Bair said SVB’s situation should be a “wake-up call” to other banks about what factors could lead to bankruptcy, beyond the quality of their loans and assets. The fact that SVB’s clients are so concentrated in one industry is seen as a rarity among banks, and experts believe it would otherwise not have failed without the run on deposits.
“This is another wake-up call: You also need to look at liabilities,” Bair said. “Institutional money search [higher] performance is not stable.”
According to a Saturday bloomberg report, the FDIC and the Federal Reserve are now considering the creation of a fund to help support a larger amount of deposits in failing banks. The hope for the fund would be to help reassure depositors that their money is safe, reducing the likelihood of a panic like the one that led to SVB’s bankruptcy.
Democratic Rep. Josh Gottheimer of New Jersey urged Treasury Secretary Janet Yellen in a letter Sunday to “take immediate action using all necessary regulatory tools.” Similarly, Rep. Ro Khanna, D-Calif., said the Treasury Department should offer “more clarity” on the situation.
Story-level week reached out to the FDIC press office by email for comment.