Falling over SVB could lead to a bank run on regional banks in America

The bankruptcy of the Silicon Valley Bank (SVB) could lead to a bank run on thousands of small banks in the US, with trillions of dollars at stake. Nearly 50% of deposits in the US are uninsured and nearly a third of those are in small banks.

Potential domino effect on US regional banks

Former Bridgewater executive and CEO of investment firm Unlimited, Bob Elliot, warns that the decisions of the Federal Reserve and the Federal Deposit Insurance Corporation (FDIC) about the future of the Silicon Valley Bank (SVB) could affect regional banks in the United States. He claims that this puts trillions of dollars at risk of falling victim to a bank run.

Elliot stated in a Twitter thread on March 11 that nearly a third of deposits in the United States are held by small banks, about 50% of which are uninsured. While the FDIC insures small deposits in all US banks, it only covers about 9 trillion of the nearly 17 trillion in outstanding deposits.

As of February 2023, small banks in the United States had $6.8 trillion in assets and $680 billion in equity, according to Fed data. Elliot indicated that if the tech bank goes bankrupt, it risks sending thousands of small banks into a run, making SBV’s situation a problem for the “common man on the street.”

Total assets, small, domestic commercial banks in the United States. Source: US Federal Reserve

Good for Bitcoin

The collapse of Silicon Valley Bank is obviously not something to celebrate, because it shows how fragile our financial system is. For Bitcoin, however, it is a positive development if you look at the price. Many people now feel unsafe within the traditional financial system and see Bitcoin as an alternative.

At the time of writing, Bitcoin is clocking in at $27,500, representing a 36.05 percent increase over the past seven days. Measured from the beginning of 2023, Bitcoin has even increased by more than 60 percent.

When the traditional financial system squeaks and creaks, you see Bitcoin often thriving. That is also the case now.

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