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Everyone is afraid of contagion after the huge American bank failure

According to Bloomberg’s sources, negotiations have begun between the authorities and representatives of the banking sector, during which the establishment of a special deposit insurance instrument was proposed. They hope that this will reassure depositors and restore confidence. The FDIC currently insures deposits up to 250,000 dollars, the question is whether it will have sufficient funds for this if a more serious infection starts after the bankruptcy of SVB.

On Saturday, the deposit insurance company contacted several small and medium-sized banks separately to inquire about their financial situation. Among others, First Republic Bank has received such questions, according to Bloomberg’s source. The shares of the financial institution fell by 34% in one week after Friday’s 15% fall. To reassure investors, they indicated in a statement that their liquidity situation is adequate. Similarly, Phoenix-based Western Alliance Bancorp tried to calm the market.

According to the CNBC article, the market is primarily afraid that if the FDIC cannot settle the $250,000 in insurance claims, then confidence in medium-sized banks may be shaken. In addition, SVB’s customers are typically companies whose savings exceed the limit.

In December, 95% of the bank’s deposit portfolio was uninsured.

The majority of clients are startups, which further increases the risk of infection, since if they do not get access to their money within a short period of time, it is possible that they will not be able to pay salaries and will have to lay off some of their employees.

According to experts, the government should act by Monday to calm the market, the best thing would be for another bank to take over SVB’s assets, which would guarantee all deposits by the new owner. According to some, announcements in this regard could come as early as Sunday, otherwise Monday could be a serious test for the market.

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