Silicon Valley Bank’s bankruptcy on Friday has many feared a domino effect, despite assurances from Treasury Secretary Janet Yellen, who told Sunday Face the nation that “the US banking system is really safe and well capitalized. It’s resilient.”
Among those who nevertheless expect more banks to fail is notably William Isaac, former chairman of the Federal Deposit Insurance Corporation, who has been appointed as trustee of Silicon Valley Bank.
Isaac ran the FDIC in the early 1980s amid widespread bank failures and high interest rates. In a Politics article published on Sunday, he said of the failure of the SVB: “I have no doubt: there will be more. How many more? Don’t know. How big? Don’t know. Looks a lot like the 80s to me.”
He’s not alone. Larry McDonald, founder of The Bear Traps Report, also warned on CNBC that regional banks could face a contagion risk following the collapse of the SVB.
Several regional bank stocks were halted Friday after sharp declines in early trading. Among them was First Republic Bank, a San Francisco-based lender that targets corporate and wealthy tech industry clients. The bank said in a regulatory filing that it had a “well-diversified deposit base” and “capital levels significantly in excess of regulatory requirements to be considered well-capitalized.”
Former Treasury Secretary Larry Summers does not foresee contagion in the banking sector for this role.
“I don’t think this will be a general systemic problem,” he told Bloomberg Television’s Wall Street week, though he warned of dire consequences if tech startups can’t make a payroll because funds in SVB are frozen. (Mark Cuban issued a similar warning.)
“There is little risk that SVB’s bankruptcy will spill over to other banks,” William Chittenden, who teaches finance at Texas State University, recently wrote for The Conversation. “Most banks currently have enough capital to absorb these losses, however large, thanks in part to the Fed’s efforts after the 2008 financial crisis to ensure that financial firms can weather any storm.”
He added, like Yellen, that “the banking system is healthy”.
On Saturday, the FDIC asked officials at small and medium-sized lenders, including First Republic Bank, about their financial situation, Bloomberg reported. They also reportedly discussed setting up a new special vehicle to reassure depositors – and help contain any panic.
This story was originally on Fortune.com
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