March 13, 2023
As we stated in our March 10, 2023 Client Alert, Silicon Valley Bank, Santa Clara, California (“SVB”), was closed on Friday, March 10, 2023 by the California Department of Financial Protection & Innovation, and the Federal Deposit Insurance Corporation (“FDIC”) was appointed as receiver. Since our initial client alert on Friday, several key developments have occurred. (Please see our related Client Alert on developments with respect to Signature Bank that occurred yesterday, and our related Client Alert on the new Fed Bank Term Funding Program/First Republic issues that occurred yesterday as well).
Updates to SVB’s FDIC Receivership
Yesterday, the “Joint Statement by the Department of the Treasury, Federal Reserve and FDIC” was issued with respect to actions taken over the weekend affecting the SVB FDIC receivership. Two key elements of this Joint Statement are:
Based on this Joint Statement, SVB depositors have access to all of their deposit amounts starting this morning, due to the invocation of the systemic risk exception (effectively removing the $250,000 per account FDIC insurance cap for SVB depositors).
In addition, earlier today, the FDIC issued a press release stating that it was converted the Deposit Insurance National Bank of Santa Clara to a bridge bank named Silicon Valley Bank, N.A. (the “Bridge Bank”) While a deposit insurance national bank only has the authority to assume the deposits of a failed bank, a bridge bank is a chartered national bank that operates under a board appointed by the FDIC. It assumes the deposits and certain other liabilities and purchases certain assets of a failed bank. The bridge bank structure is designed to “bridge” the gap between the failure of a bank and the time when the FDIC can stabilize the institution and implement an orderly resolution.
In line with the FDIC’s previous press release and information about operations of the DINB, any new funds that come in to any SVB depositor’s accounts at the Bridge Bank after SVB’s receivership on March 10, 2023 (the “Receivership Time”) should be processed by the Bridge Bank in the ordinary course and should be available to SVB deposit customers at the usual times under the Expedited Funds Availability Act.
This situation is still fluid, but given the original March 10, 2023 FDIC press release, as updated by the Joint Statement and the FDIC’s March 13, 2023 press release:
FDIC as Receiver for Silicon Valley Bank
600 N. Pearl St., Suite 700
Dallas, Texas 75201
While there now is clarity on how the deposits of SVB will be handled, at this time there doesn’t appear to be clarity on how the SVB loans now held by the Bridge Bank will be administered. The FDIC has said that all payments on the loans should be made on a timely basis. But it is not clear whether the Bridge Bank will honor SVB’s obligations under lines of credit or will renew loans previously made by SVB.
Earlier today, Silicon Valley Bank issued a press release announcing that its Board of Directors has appointed a restructuring committee consisting of five independent directors to explore strategic alternatives for the holding company and its SVB Capital and SVB Securities businesses, as well as its other assets and investments.
In addition, earlier today the Bank of England issued a press release stating that HSBC bought the Silicon Valley Bank UK:
“The Bank of England (Bank), in consultation with the Prudential Regulation Authority (PRA), HM Treasury (HMT) and the Financial Conduct Authority (FCA), has taken the decision to sell Silicon Valley Bank UK Limited (‘SVBUK’), the UK subsidiary of the US bank, to HSBC UK Bank Plc (HSBC). HSBC is authorised and supervised by the PRA and the FCA. This action has been taken to stabilise SVBUK, ensuring the continuity of banking services, minimising disruption to the UK technology sector and supporting confidence in the financial system.”
The FDIC has only established three bridge banks since 2007 (operating as receiver for over 525 bank during that same time period). Bridge banks are utilized when a bank fails suddenly, including due to liquidity issues, and there is no time to identify a buyer through a bid process due to the speed of the failure and/or the size of the failed institution. While the FDIC operated two bridge banks in 1992 for less than six months, the FDIC managed the bridge bank formed in IndyMac’s failure for nine months, during which the bridge bank was wound down and sold. Given SVB’s size and product lines, there is a limited universe of potential buyers, and the FDIC may take the same approach used on IndyMac - winding down certain of SVB’s business lines and then selling the remainder.
We intend to monitor the situation with SVB and update this Client Alert as additional information becomes available.
How We Can Help: Hunton Andrews Kurth LLP has assembled a cross-disciplinary team consisting of attorneys from our bank regulatory, finance, structured finance and securitization, capital markets, securities, private equity/VC, M&A, employers’ rights, bankruptcy, restructuring and creditors’ rights practices to assist clients with the unfolding situations involving Silicon Valley Bank, Signature Bank and any similarly situated banks.
Please contact any of the attorneys listed on this Client Alert, any other attorney you regularly work with at Hunton, or reach out via email to HuntonTroubledBankTaskForce@huntonak.com, to be connected with our team monitoring and helping clients respond to these issues and continuing developments.