Feds backstop all deposits of failed Silicon Valley Bank, second Bay Area bank plunges

SANTA CLARA — Federal officials moved to insure all deposits at failed Silicon Valley Bank, hoping to inoculate the banking system against contagion, but shares of another Bay Area regional bank plunged on Monday.

Dozens of customers lined up at the doors of the Santa Clara headquarters of the fallen Silicon Valley Bank on Monday to await the opening of the financial firm’s doors. The bank began to allow customers into the bank at 10 a.m.

The move to protect Silicon Valley Bank depositors arose over fears that tech startups might be forced to shut down or furlough employees due to a cash squeeze if their uninsured deposits weren’t available to tap for their ongoing operations — andas well as to ward off runs against other banks with a high percentage of uninsured deposits.

The U.S. Treasury Department, the Federal Reserve Bank and the Federal Deposit Insurance Corp. teamed up to lead the quest against a banking system contagion in the wake of the collapse and takeover by the FDIC of the insolvent Silicon Valley Bank.

“The FDIC today transferred all deposits — both insured and uninsured — and substantially all assets of the former Silicon Valley Bank to a newly created, full-service FDIC-operated ‘bridge bank’ in an action designed to protect all depositors of Silicon Valley Bank,” the FDIC announced Monday.

Signs quickly emerged on Monday, however, that Wall Street and big investors were skeptical about the federal actions in the case of Santa Clara-based Silicon Valley Bank.

San Francisco-based First Republic Bank’s shares nosedived Monday morning and plunged 64% in early session trades on Monday.

Like Silicon Valley Bank, First Republic is a regional bank with a considerable amount of wealthy depositors.

Investors became queasy about First Republic Bank after the bank announced Sunday that the FDIC and JPMorgan Chase (Chase Bank) had teamed up to provide access to $70 billion in funds through an array of sources.

New York City-based Signature Bank joined Silicon Valley Bank in a collapse and was taken over by the FDIC during the weekend.

In a fresh sign of skepticism over small banks, federal officials failed to round up a buyer for Silicon Valley Bank despite an hours-long auction on Sunday.