Bailing out uninsured deposits encourages bank runs

  In the failure of Silicon Valley Bank and Signature Bank, U.S. officials decided to cover all the uninsured deposits in both banks — that is, deposits that exceeded the $250,000 insurance coverage of the FDIC. The belief was that failing to cover those uninsured deposits ran the risk that bank runs could spread to more banks. Covering those uninsured deposits was intended to calm depositors in other banks, which would thereby make more bank runs less likely.

Why SVB and Signature Bank failed so fast – and the US banking crisis isn’t over yet

  Silicon Valley Bank and Signature Bank failed with enormous speed – so quickly that they could be textbook cases of classic bank runs, in which too many depositors withdraw their funds from a bank at the same time. The failures at SVB and Signature were two of the three biggest in U.S. banking history following the collapse of Washington Mutual in 2008.

  How could this happen when the banking industry has been sitting on record levels of excess reserves – or the amount of cash held beyond what regulators require?