Financial regulators are discussing two different facilities to manage the fallout from the closure of Silicon Valley Bank if no buyer materializes, according to a source close to the situation.
One way that the regulators would step in would be to create a backstop for uninsured deposits at Silicon Valley Bank, using an authority from the Federal Deposit Insurance Act, according to the source. The move would also touch the systemic risk exception that allows the Fed to take extraordinary action to stem contagion fears.
Such a move could also spur confidence at similar institutions ahead of Monday, when banks open and customers can withdraw from their accounts.
An additional step would be a “general banking facility” from the Federal Reserve that would support other financials with exposure to SVB.
The moves would likely only be necessary if the FDIC was unable to find a buyer for all of SVB, or at least key parts of it. Bloomberg News reported that the FDIC was holding an auction for the bank, with final bids due on Sunday.
The move comes after regulators shut down Silicon Valley Bank on Friday, marking the largest U.S. bank failure since 2008.
The failure was caused by tens of millions in customer deposits being withdrawn on Thursday. There has been concern among investors that other mid-sized banks could face similar pressure without federal support.
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