On Friday, March 10, 2023, Silicon Valley Bank (“SVB”) was closed by the California Department of Financial Protection and Innovation, and the Federal Deposit Insurance Corporation (“FDIC”) was appointed as receiver. The FDIC has since announced that it has transferred all deposits and substantially all of SVB’s assets to a bridge bank. Citing a need “to protect depositors,” a second bank, Signature Bank, was closed by New York regulators on Sunday, March 12, 2023. The FDIC was appointed receiver and transferred all deposits and substantially all of Signature Bank’s assets to Signature Bridge Bank, N.A. The broader ramifications on the banking sector and other industries remain to be seen.
The Federal Deposit Insurance Act and related laws give the FDIC and regulators considerable latitude in unwinding and resolving the business of a failed institution, including sales to other banks or liquidations. In furtherance, the FDIC’s broad powers include potential repudiation (e.g., cancellation or modification) of agreements, investigation of fraudulent conveyances, and more.
This morning, March 13, 2023, the FDIC issued a press release for SVB that provides insight into what is presently anticipated moving forward:
· Insured and uninsured depositors are expected to have full access to their money this morning when the bridge bank, Silicon Valley Bank, N.A., opens and resumes normal banking hours.
· Depositors are presently anticipated to be made whole.
· Shareholders and certain unsecured debt holders may not receive the same protections as depositors.
· Losses to the Deposit Insurance Fund to support uninsured depositors will be recovered by a special assessment on banks.
Based on the FDIC’s original press release, uninsured depositors with deposits in excess of $250,000 would have otherwise been given a receivership certificate for the balance of their uninsured deposits. The receivership certificate would have entitled the uninsured depositors to dividends payable with the proceeds from the sale of SVB’s assets.
A similar press release was issued by the FDIC for Signature Bank on Sunday, March 12, 2023. As with SVB, the FDIC’s press release regarding Signature Bank states that all depositors will be made whole. In remarks delivered this morning, President Joe Biden attempted to reassure Americans that the banking system is safe after the collapse of SVB and Signature Bank, but noted that investors in bank stocks may not receive the same protection.
We will be monitoring the situation as it continues to evolve. Clients are encouraged to contact the authors or their relationship partner at Bast Amron with any questions.
About Dain de Souza
Dain is an experienced litigator whose practice focuses, among other things, on business disputes, commercial and corporate litigation, and special situations. He also has significant experience handling a full range of bankruptcy, regulatory and investigation, and distressed situation disputes, transactions, and restructuring matters—leveraging deal-side and courtroom experience to achieve client objectives.
As a veteran trial and appellate litigator, Dain has successfully handled litigation proceedings at every level—representing clients in matters in state and federal trial and bankruptcy courts through the US Supreme Court. Dain also has substantial experience representing debtors, creditors, lenders, and other parties in all aspects of complex chapter 11 reorganizations and litigation.
With his background in special situations, Dain helps clients find practical solutions to legal and business risks. In connection, he also handles internal investigations, regulatory and enforcement proceedings, and compliance matters, including with respect to the Foreign Corrupt Practices Act, financial services laws and regulations, and distribution, logistics, and data management. Click here to learn more.
About Hunter Grasso
Hunter Grasso concentrates his practice in the areas of bankruptcy, insolvency, and commercial litigation. Prior to joining Bast Amron, Hunter practiced in the Miami office of a national firm and gained litigation experience representing developers and general contractors in complex commercial disputes. He also served as a Judicial Extern to the Honorable A. Jay Cristol, Chief Judge Emeritus U.S. Bankruptcy Court, Southern District of Florida, and as a Judicial Extern to the Honorable Laurel M. Isicoff, Chief Judge, U.S. Bankruptcy Court, Southern District of Florida. Click here to learn more.