Author: Kyle Recker
Additional developments relating to the Silicon Valley Bank and Signature Bank failures have occurred, and the situation continues to evolve. Upon the closure of Silicon Valley Bank the FDIC initially created the Deposit Insurance National Bank of Santa Clara, into which it immediately transferred all insured deposits. The FDIC has subsequently established Silicon Valley Bridge Bank, N.A. (SVBB), a temporary national bank that will continue operations as a full-service bank. This is the same form of bridge bank that the FDIC utilized at the outset for Signature Bank when it formed Signature Bridge Bank N.A. (SBB). The FDIC has now transferred all insured and uninsured deposits at Silicon Valley Bank, as well as substantially all of the bank’s other assets and obligations, to SVBB.
Both SVBB and SBB are continuing to perform their obligations under all contracts, which are backed by the FDIC and the full faith and credit of the United States, and all counterparties are likewise expected to continue fulfilling their contractual obligations to each bank.[1] Earlier this week, the FDIC appointed Tim Mayopoulos as CEO of SVBB. Mr. Mayopoulos subsequently released a statement assuring customers that the bank is open for business, opening new accounts, making new loans, and fully honoring existing credit facilities.[2] A statement on the Signature Bank website also states that SBB is still “providing a full suite of loan, deposit, and banking services.”[3]
At this time, it seems that the FDIC’s strategy is to keep operations at both banks as intact as possible so that the banks can either be recapitalized or sold whole. During a call with Silicon Valley Bank clients on Wednesday, Mr. Mayopoulos reportedly implored them to move deposits to SVBB, and indicated that if they keep their deposits with other institutions then “that clearly limits the range of options.”[4] If a recapitalization or sale does not materialize with respect to either bank, liquidation remains a possibility. As covered in our previous alert, the FDIC retains the authority to halt lending operations and repudiate contracts and leases, as it determines to be in the best interests of the receivership, and may dispose of the bank’s assets in a piecemeal fashion. Those with ties to either bank should continue to monitor the situation.
Also on the horizon is a potential bankruptcy or other liquidation or restructuring event for Silicon Valley Bank’s parent company, SVB Financial Group, in which the parent company’s non-bank businesses and assets may be sold or otherwise administered.
For questions regarding any potential claims, or assistance evaluating existing credit facilities, leases, and other contracts to determine whether any actions may be appropriate in connection with recent events, please contact Kyle Recker at krecker@coblentzlaw.com or another member of the Coblentz team.
[1] See FDIC Financial Institutions Letter FIL-10-2023.
[2] A copy of this statement is available here.
[3] See https://www.signatureny.com/home.
[4] See this article at CNBC.
Impact of Recent Bank Failures on Borrowers, Landlords, and Other Stakeholders
Author: Kyle Recker
By now, most will have heard the news that all deposits at Silicon Valley Bank have been made available to depositors. The Federal Deposit Insurance Corporation (FDIC), in a series of joint statements issued with the U.S. Department of the Treasury and the Board of Governors of the Federal Reserve System, announced that all deposits at Silicon Valley Bank – both FDIC-insured and uninsured deposits – have now been transferred to the Deposit Insurance National Bank of Santa Clara, a newly-created bank established by the FDIC.1
New York regulators also shut down Signature Bank on Sunday, March 12, 2023, and appointed the FDIC as receiver. Similar to Silicon Valley Bank, both FDIC-insured and uninsured deposits have been transferred to Signature Bridge Bank, N.A., which will be operated by the FDIC as a full-service bank while it is marketed for sale to potential buyers.
The Systemic Risk Exception
The protection of all deposits at Silicon Valley Bank and Signature Bank, rather than only FDIC-insured deposits, was made possible by the so-called “systemic risk exception” (SRE). The SRE was created by the Federal Deposit Insurance Corporation Improvement Act of 1991 (FDIC Improvement Act), which prohibited the protection of uninsured deposits if the cost of the resolution of a failed bank to taxpayers would be increased as a result.2 The SRE allows the FDIC to bypass this limitation by invoking the SRE if the Secretary of the Treasury, with the recommendation of the boards of the FDIC and the Federal Reserve System, determines that there would otherwise be “serious adverse effects on economic conditions or financial stability.” On Sunday, the FDIC invoked the SRE for Silicon Valley Bank and Signature Bank.
Bank Term Funding Program
The recent invocations of the SRE specifically apply to Silicon Valley Bank and Signature Bank; it does not mean that uninsured deposits at other financial institutions would be fully protected in the future (unless similar actions are taken). To restore confidence in the liquidity of the U.S. banking industry, the Federal Reserve Board also announced that it is establishing a new program known as the Bank Term Funding Program.3 Any FDIC-insured deposit institution may borrow funds under the program by depositing certain eligible securities with the Federal Reserve Banks as collateral, which will be valued at par rather than current market value. Advances are available for terms of up to one year, in amounts equal to the par value of the collateral. This will allow financial institutions to temporarily access liquidity equal to the par value of their securities which have lost market value, and currently represent unrealized losses a bank would be forced to realize now if it needed to sell the securities on the market (which essentially is what caused the run on Silicon Valley Bank).
