US Banking Agencies Respond to the Collapse of Silicon Valley Bank and Signature Bank | Practical Law

US Banking Agencies Respond to the Collapse of Silicon Valley Bank and Signature Bank | Practical Law

Following the closure of Silicon Valley Bank and Signature Bank, the US bank regulatory agencies moved quickly to protect the US economy and strengthen public confidence in the banking system.

US Banking Agencies Respond to the Collapse of Silicon Valley Bank and Signature Bank

by Practical Law Finance
Law stated as of 15 Mar 2023USA (National/Federal)
Following the closure of Silicon Valley Bank and Signature Bank, the US bank regulatory agencies moved quickly to protect the US economy and strengthen public confidence in the banking system.
On March 10, 2023, following a bank run where customers withdrew $42 billion in a single day from Silicon Valley Bank (SVB) and left it with $1 billion in negative cash balance, the California Department of Financial Protection and Innovation closed SVB and appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. SVB was a bank that specialized in banking for tech startups. Following that development, on March 12, 2023, the US Department of the Treasury (Treasury), the Board of Governors of the Federal Reserve System (FRB), and the FDIC (collectively, the Agencies) issued a joint statement (Joint Statement) declaring a systemic risk exception provided under the Federal Deposit Insurance Act (12 U.S.C. §1823(c)(4)(G)) and detailing actions to enable the FDIC to complete its resolution of SVB in a manner that will protect all depositors and which will give depositors access to all of their insured and uninsured deposits.
Before the FDIC stepped in, depositors were only guaranteed up to the $250,000 of the FDIC insurance limit. The Agencies stated that taking action to fully insure all deposits was necessary to protect the US economy by strengthening public confidence in the banking system. On March 13, 2023, the FDIC transferred all deposits and substantially all assets from SVB to a newly created, full-service FDIC-operated bridge bank, Silicon Valley Bridge Bank, N.A. A bridge bank is a chartered national bank that operates under a board appointed by the FDIC and assumes the deposits and certain other liabilities of a failed bank. The bridge bank structure is designed to bridge the gap between a bank's failure and the time when the FDIC can stabilize the institution and implement an orderly resolution.
Under the Joint Statement, the Agencies also announced a similar systemic risk exception and commitment to fully protect all deposits for Signature Bank (Signature), which was closed on March 12, 2023 by the New York Department of Financial Services (NYDFS). NYDFS took possession of Signature and appointed the FDIC as receiver of the bank. The FDIC announced that it had transferred all deposits and substantially all of the assets into Signature Bridge Bank, N.A. Signature was a commercial bank with nine national business lines including commercial real estate and digital asset banking. According to the NYDFS, Signature had $110.36 billion in assets and $88.59 billion in deposits at the end of last year.
The FRB also announced the creation of a new Bank Term Funding Program (BTFP) in order to make available additional funding to eligible depository institutions to help assure that they have the ability to meet the needs of all their depositors. The BTFP will offer no-fee loans of up to one year to banks, savings associations, credit unions, and other eligible depository institutions that pledge US Treasuries, agency debt, mortgage-backed securities, and other qualifying assets at par as collateral. The Treasury will provide $25 billion from the Exchange Stabilization Fund as a backstop for the BTFP. The FRB provided an FAQ on the specifics of the BTFP.
On March 13, 2023, the FRB announced that Vice Chair for Supervision Michael S. Barr will lead a review of the supervision and regulation of SVB, in light of its failure. The review will be publicly released by May 1, 2023.