EXCLUSIVE: Fed Steps In To Save Depositors Following SVB Failure; Is The Time To Buy Shares Of Regional Banks?

Zinger Key Points
  • Tim Melvin, an expert regional bank trader, shares his thoughts on what happened with SVB, and what comes next.
  • Melvin says the regional banking industry is fine outside of SVB, and there are opportunities for investors in those stocks.

This article was originally published on Friday, however it has been updated in light of recent announcements.

The Federal Reserve on Sunday announced that it will provide additional funding to eligible depository institutions to help them meet the needs of all their depositors, a move that will backstop depositors and protect financial institutions, including SVB Financial Group SIVB, and New York-based Signature Bank SBNY.

Regulators approved the additional funding through the creation of a new Bank Term Funding Program (BTFP), offering loans of up to one year in length to banks, and other eligible depository institutions pledging U.S. Treasuries, agency debt and mortgage-backed securities, and other qualifying assets as collateral.

So, with the Fed stepping in to provide safegaurds to depositors, is it time to buy the recently beaten down shares of regional banks? Tim Melvin thinks so.  

Silicon Valley Bank's focus on the venture capital industry was its downfall, Melvin, a regional bank trader, said on "Benzinga Live" Friday

Silicon Valley Bank has been closed by the California Department of Financial Protection and Innovation and the Federal Deposit Insurance Corporation (FDIC) has been appointed as the bank's receiver.

SVB's parent company, SVB Financial Group SIVB, failed to raise enough cash to sustain operations, and the bank was closed by the California Department of Financial Protection Friday and taken over by the Federal Deposit Insurance Corp. 

The companies most affected by SVB's collapse are venture capital-funded companies, especially in the tech startup space, Melvin said. 

Read More: Check Out Tim Melvin On Marketfy

Melvin On What Happens Now: Early stage venture capital funding has dried up for the affected companies, and if they had money in SVB, they’re eligible to receive $250,000 under FDIC rules. Those funds could come as early as Monday, he said. 

The FDIC will manage the bank's assets, securities and loans to recover as much as possible for depositors, who Melvin said will come first, while shareholders, bondholders and preferential investors are still up in the air.

The regional bank expert said expects that depositors will get all or most of their money back, although it will take some time.

In his view, SVB should have halted deposits for a few days to calm the run on the bank instead of letting it turn into total failure, adding that the bank put too much money into its securities portfolio.

Other regional banks like Western Alliance Bancorporation WAL and PacWest Bancorp PACW, whose shares have dropped significantly, may not suffer the same fate as SVB, as they do not rely heavily on venture capital relationships, Melvin said. 

Melvin said that unlike SVB, which serviced early stage venture funds, Western and PacWest mostly cater to late-stage funds, so while there could be a temptation to bail out a fund if necessary, it would not represent the bulk of deposits at either of the banks.  

Melvin said he considers the SVB issue an interesting situation that we will be studying for a long time due to how quickly it occurred — and the fact that it probably did not have to happen.

The market was the root of the problem, in Melvin's view, as it marked everything on a quarterly basis, which led to freezing withdrawals and a flood of deposit requests the bank could not handle.

Fear can lead to fear, he told Benzinga. The deposit demand from venture capital and crypto should not be replicated across other industries around the country, but a bank run cannot be completely ruled out, Melvin said. 

Melvin's 5 Bank Trade Ideas: Melvin named five regional banks that are currently trading under book value that could present themselves as opportunities for investors in the near future:

HomeStreet Inc HMST

TFS Financial Corporation TFSL


New York Community Bancorp, Inc. NYCB

Horizon Bancorp Inc HBNC

Watch the full interview here: 

Read next: Sunrun Down Over 10% On Silicon Valley Bank Exposure: What Other Companies Are Exposed?

Photo via Shutterstock. 

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