Fed and FDIC discussing backstop to make SVB depositors whole and stem contagion fears, source says

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.

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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 spur confidence at similar regional banks and institutions ahead of Monday, when they 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 direct exposure to SVB so they wouldn’t have to materially change their business or take steep losses.

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.

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Silicon Valley Bank collapses in biggest bank failure since Great Recession

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The move comes after regulators shut down Silicon Valley Bank on Friday, marking the largest U.S. bank failure since 2008.

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The failure was caused by tens of millions in customer deposits being withdrawn on Thursday.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.

This is a developing story. Please check back for updates.