FDIC, Fed Discussing Creation Of Fund To Backstop Deposits If More Banks Fail Following SVB Collapse: Report

As news of Silicon Valley Bank’s collapse spread across the financial world, the Federal Deposit Insurance Corp, or FDIC, and the Federal Reserve reportedly began discussing the creation of a new fund that could allow regulators to backstop more deposits at troubled banks.

What Happened: Regulators discussed creating a fund that would serve as a backstop for deposits at banks that run into trouble, reported Bloomberg. The hope is that by setting up such a special vehicle, regulators can provide greater stability and confidence to depositors and reduce panic.

See Also: Roku Has 26% Of Cash With SVB Financial, Deposit Recovery Uncertain — 27 Other Companies With Ties To Collapsed Bank

While the talks have not been made public, banking executives have been involved in the discussions, the report stated.

The move comes in the wake of the collapse of Silicon Valley Bank, a subsidiary of the SVB Financial Group SIVB, on Friday.

Following the collapse, the FDIC assumed control of SVB and even offered the bank's employees 45 days of work at 1.5 times their salary.

SVB struggled to secure more capital and fears of cash depletion and liquidity caused a sharp decline in the bank’s shares on Thursday and Friday, leading to a halt in trading. Before the bank's downfall, several SVB Financial Group insiders sold shares of the stock — a move that is now drawing attention from investors and on social media.

Why It’s Important: The collapse has raised concerns about the health of regional banks focused on the venture capital and startup sectors and any possible risks to the larger financial system. The new fund that regulators are considering is a component of their emergency planning to handle these risks and provide greater stability to the entire financial system.

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