A bank CEO explains how the Silicon Valley Bank failure could actually build trust in the system and why it'll have little impact on Fed policy

• The government response to SVB's failure is a chance to boost Americans' confidence in the system. 
• That's according to the CEO of Capra Bank, who said protecting deposits is of highest importance. 
• He added that the episode will likely not impact on Fed policy, as inflation is still its top concern. 

Silicon Valley Bank's failure and regulators' response could ultimately boost Americans' confidence in the financial system, according to Tut Fuller, the founder and chief executive of Capra Bank, a community bank in Iowa.

Over the last three days, regulators closed down SVB as well as Signature Bank, and the Federal Reserve, Treasury, and FDIC issued a joint statement Sunday reassuring depositors that they would be made whole, and that taxpayers wouldn't bear the cost of the clean up.

"As long as depositors are protected, then people will have confidence they can get their money out of the bank, and contagion won't spread," Fuller said.

With SVB and Signature Bank marking the first and second major bank failures since 2008, the Iowa executive said the next handful of are "somewhat obvious." Beyond those, he noted that roughly 20 regional banks are likely to feel some pain, but will emerge without failing. 

The parameters he's eyeing for which banks could fail next include those that have lower capital and higher unrealized bond losses as a percent of capital, as well as firms with a lower loan to deposit ratio. 

"Those with significant deposit outflows over the past few quarters and thus can't organically grow or hold deposits, and those that are more concentrated in their Top 100 depositors probably top that list," Fuller said.

The other impact of the event may be on central bank policy, Fuller said. 

Goldman Sachs strategists told clients Sunday that, given the turmoil, they no longer anticipated another interest rate hike from the Fed at the March meeting.

Assuming that depositors are getting their money back, Fuller said "a few poorly managed banks failing and few others having their stock prices and leadership punished should have little impact on Fed policy, because it should have little impact on inflation, which is the Fed's current enemy."

He added that he thinks a 25-basis-point move is now more likely than a half-point hike, which markets had been expecting before the bank failures.

Plus, the intervention from regulators this weekend is a step toward prioritizing everyday bank customers who had assumed their money would be safe. 

"I'm hopeful that the government's approach of stepping in and protecting depositors, but not bailing out failed executives and boards of directors, actually builds confidence," Fuller said.

On Monday, markets were pricing in a 44.6% probability the Fed would hold the Fed Funds Rate at the 4.5%-4.75% range, the CME FedWatch Tool shows. That's up from zero odds over the past month that the Fed would hold off on raising rates.

US Treasury bond yields, meanwhile, plunged to their lowest levels since 2008 as expectations shift to a lighter rate hike or a pause in the wake of the SVB chaos.