In the wake of the Silicon Valley Bank (SVB) collapse, US regulators are reportedly discussing the creation of a fund that would allow them to support financing for depositors when banks suffer. The Federal Reserve (Fed) and the Federal Deposit Insurance Corporation (FDIC) have been in talks with banking executives about the new tool that aims to reassure depositors and control panic.
The US regulators’ contingency plan is said to include this unique new tool, which would be activated in the event of panic about the strength of banks that focus on venture capital and startups. The aim is to provide a safety net for depositors during times of financial stress.
Although the Fed and FDIC have not yet commented on the matter, reports suggest that the fund could go a long way in calming nerves among depositors and preventing a widespread run on banks.
On March 11, the same day these reports emerged, US President Joe Biden spoke with California Governor Gavin Newsom about the SVB business collapse and how to remedy the situation. The collapse of SVB occurred after depositors worried about the bank’s financial condition withdrew their deposits, causing panic in the financial markets and eliminating over $100 billion of banks’ market value in the US.
The proposed fund is seen as a critical tool to prevent such situations from spiraling out of control and creating a ripple effect across the US financial system. As the discussions continue, it remains to be seen how this new tool will be implemented and what impact it will have on the banking industry and depositors.