Tag Archives: SVB

FDIC To Break Up Silicon Valley Bank

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The Federal Deposit Insurance Corporation on Monday decided to break up Silicon Valley Bank (SVB) and hold two separate auctions for its traditional deposits unit and its private bank after failing to find a buyer for the failed lender last week, Reuters reported.

According to Reuters, the FDIC will seek bids for Silicon Valley Private Bank until March 22 and for the bridge bank until March 24. The private bank, which is housed within SVB’s retail operations, caters to high net-worth individuals.

First Citizens BancShares Inc, one of the biggest buyers of failed U.S. lenders, has submitted a bid for all of Silicon Valley Bank, one source with knowledge of the matter said. If the FDIC decides to receive bids for parts of SVB, First Citizens also expected to bid. Bloomberg reported earlier on their interest on SVB.

The FDIC posted a press release on Monday titled: “FDIC Extends Bid Window For Silicon Valley Bridge Bank, N.A.” from the press release:

“The Federal Deposit Insurance Corporation (FDIC) has extended the bidding process for Silicon Valley Bridge Bank, National Association, Santa Clara, California. There has been substantial interest from multiple parties, and the FDIC and the bidders need more time explore all options in order to maximize value and achieve an optimal outcome.

To help simplify the bidding process and expand the pool of potential bidders, the FDIC will allow parties to submit separate bids for Silicon Valley Bridge Bank, N.A., and its subsidiary Silicon Valley Private Bank. Qualified, insured banks, and qualified, insurance banks in alliance with non-bank partners, will be able to submit whole-bank bids or bids on the deposits or assets of the institutions. Bank and non-bank financial firms will be permitted to bid on the asset portfolios…

…In the meantime, Silicon Valley Bridge Bank, N.A., continues to operate as a nationally chartered bank. Depositors will continue to have full access to all of their money through Silicon Valley Bridge Bank, N.A., which operates 17 branches in California and Massachusetts, and through online banking, ATM and debit card, and by writing checks. Loan customers should continue making loan payments as usual.

Vendors and counterparts with contracts with the bridge bank are legally obligated to continue to perform under the contracts. Silicon Valley Bridge Bank, N.A., has the full ability to make timely payments to vendors and counterparties and otherwise perform its obligations under the contract…”

PBS reported that the bidding process for the successor of Silicon Valley Bank is being extended by the Federal Deposit Insurance Corp. to give more time to work out a potential deal.

According to PBS, on Friday the parent of Silicon Valley Bank filed for Chapter 11 bankruptcy protections. SVB Financial Group is no longer affiliated with Silicon Valley Bank after its seizure by the FDIC. Its collapse was the second biggest bank failure in U.S. history after the demise of Washington Mutual in 2008.

In my opinion, it will be interesting to find out which companies decide to bid on SVB, and which one the FDIC will select as its new owner.

Department of Treasury, Federal Reserve, and FDIC Post Release About SVB

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The Department of the Treasury, Federal Reserve, and FDIC posted a joint statement in the form of a press release. It was posted on March 12, 2023, and is in regards to SVB and Signature Bank. From the press release:

“The following statement was released by Secretary of the Treasury Janet L. Yellen, Federal Reserve Board Chair Jerome H. Powell, and FDIC Chairman Martin Gruenberg:

“Today we are taking decisive actions to protect the U.S. economy by strengthening public confidence in our banking system. This step will ensure that the U.S. banking system continues to preform it’s vital roles of protecting deposits and providing access to credit to households and businesses in a manner that promotes strong and sustainable economic growth.

“After receiving a recommendation from the boards of the FDIC and the Federal Reserve, and consulting with the President, Secretary Yellen approved actions enabling the FDIC to complete its resolution of Silicon Valley Bank, Santa Clara, California, in a manner that fully protects all depositors. Depositors will have access to all of their money starting Monday, March 13. No losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer.

“We are also announcing a similar systemic risk exception for Signature Bank, New York, New York, which was closed today by its state chartering authority. All depositors of this institution will be made whole. As with the resolution of Silicon Valley Bank, no losses will be borne by the taxpayer.

“Shareholders and certain unsecured debt holders will not be protected. Senior management has also been removed. Any losses to the Deposit Insurance Fund to support uninsured depositors will be removed by a special assessment on banks, as required by law.

“Finally, the Federal Reserve Board on Sunday announced it will make available additional funding to eligible depository institutions to help assure banks have the ability to meet the needs of all their depositors.

“The U.S. banking system remains resilient and on a solid foundation, in large part due to reforms that were made after the financial crisis that ensured better safeguards for the banking industry. Those reforms combined with today’s actions demonstrate our commitment to take the necessary steps to ensure that depositors’ savings remain safe.”

CNBC reported that U.S. regulators on Sunday shut down New York-based Signature Bank, a big lender in the crypto industry, in a bid to prevent the spreading banking crisis.

The banking regulators said depositors at Signature Bank will have full access to their deposits, a similar move to ensure depositors at the failed Silicon Valley Bank will get their money back.

The regulators shuttered Silicon Valley Bank on Friday and seized its deposits in the largest U.S. banking failure since the 2008 financial crisis – and the second-largest ever. The dramatic moves come just days after the tech-focused institution reported that it was struggling, triggering a run on the bank’s deposits.

Signature is one of the main banks to the cryptocurrency industry, the biggest one next to Silvergate, which announced its impending liquidation last week. It had a market value of $4.4 billion as of Friday after a 40% sell-off this year, according to FactSet.

To stem the damage and stave off a bigger crisis, the Fed and Treasury created an emergency program to backstop deposits at both Signature Bank and Silicon Valley Bank using the Fed’s emergency lending authority.

The FDIC’s deposit insurance fund will be used to cover depositors, many of whom were uninsured due to the $250,000 guarantee on deposits. While depositors will have access to their money, equity and bondholders at both banks are being wiped out, a senior Treasury official said.

Overall, I think the decisions outlined in the press release will be a relief to people who otherwise might have lost their savings in SVB or Signature Bank. It is good that this group of people won’t have to lose their entire savings just because their bank failed.

U.S. Officials Weigh Protecting All Deposits At SVB

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Federal authorities are seriously considering safeguarding all uninsured deposits at Silicon Valley Bank, weighing an extraordinary intervention to prevent what they fear would be a panic in the U.S. financial system, according to three people with knowledge of the matter, who spoke on the condition of anonymity to describe private deliberations, The Washington Post reported.

The plan would be among the potential policy responses if the government is able to find a buyer for the failed bank. The FDIC began an auction process for SVB on Saturday and hoped to identify a winning bidder Sunday afternoon, with final bids expected by 2 p.m. Eastern time, according to two people familiar with the matter.

Although the FDIC insures bank deposits up to $250,000, a provision in federal banking law may give them authority to protect the uninsured deposits as well as if they conclude that failing to do so would pose a systemic risk to the broader financial system, the people said. In that event, uninsured deposits could be backstopped by an insurance fund, paid into regularly by U.S. banks.

Before that happens, the systemic risk verdict must be endorsed by a two-thirds vote of the Fed’s Board of Governors and the FDIC board along with Treasury Secretary Janet Yellen. No final decision has been made, but the deliberations reflect concern over the collateral damage from SVB’s collapse and authorities’ struggle to respond amid limits on their powers implemented following the 2008 financial bailouts.

According to The Washington Post, any decision to provide unusual assistance to SVB’s depositors would likely draw opposition. As discussions continued Sunday, some experts said that problems at the bank – and others like it – did not pose a threat to the U.S. financial system.

That said, there is another problem to consider regarding Silicon Valley Bank. CNBC reported that employees of SVB received their annual bonuses Friday just hours before regulators seized the failing bank, according to people with knowledge of the payments.

The Santa Clara, California-based bank has historically paid employee bonuses on the second Friday of March, said the people, who declined to be identified speaking about the awards. The payments were for work done in 2022 and had been in process days before the bank’s collapse, the source said.

This year, bonus day happened to fall on SVB’s final day of independence. The institution, in the throes of a bank run triggered by panicked venture capital investors and startup founders, was seized by the Federal Deposit Insurance Corporation, (FDIC) around midday Friday.

On Friday, SVB CEO Greg Becker addressed workers in a two-minute video in which he said that he no longer made decisions at the 40-year-old bank, according to the people.

The size of the payouts couldn’t be determined, but SVB bonuses range from about $12,000 for advocates to $140,000 for managing directors, according to Glassdoor.com.

After the seizure, the FDIC offered SVB employees 45 days of employment, the people said. The bank had 8,528 employees as of December.

A spokesman for FDIC declined to comment on the bonuses.

Personally, I think many people will view those last-minute annual bonuses in a negative light. There appears to be a precedent for SVB to issues bonuses on specific days. But, doing so while knowing that SVB was already on the verge of collapse is going to look sketchy to some people.

The Collapse Of SVB Affected The Cryptocurrency Companies

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The sudden collapse of Silicon Valley Bank on Friday set off panic across the technology industry. But crypto executives and investors – who have endured a year of near-constant upheaval – seized on the moment to preach and scold, The New York Times reported.

Centralized banking was to blame, the crypto advocates said. Their vision of an alternative financial system, unmoored from big banks and other gatekeepers, was better. They argued that the government regulators that recently cracked down on crypto firms had sown the seeds of the bank’s implosion.

“Fiat is fragile,” wrote the Bitcoin advocate Erik Voorhees, using a common shorthand for traditional currencies.

“We’re seeing glitches in the machine,” said Mo Sheikh, chief executive of the crypto company Aptos Labs. “This is an opportunity to take a breath and consider the practicalities of decentralization.”

And the finger-pointing went in both directions. Some tech investors argued that the crypto world’s procession of bad actors and overnight collapses had conditioned people to panic at the first sign of trouble, setting the stage of the crisis at Silicon Valley Bank. In November, FTX, the crypto exchange run by Sam Bankman-Fried, went out of business after the crypto equivalent of a bank run exposed an enormous hole in its accounts.

“People are just traumatized. They’re financially shellshocked,” said Sam Kazemian, the founder of the crypto project Frax. “As soon as you see something, you wonder if there’s a fire over there because it smells like smoke. And then you can treat it like everything is burning and get out while you still can.”

CNBC reported that the U.S. cryptocurrency firm Circle’s USD Coin lost its dollar peg and fell to a record low Saturday morning after the company revealed it has nearly 8% of its $40 billion in reserves tied up at the collapsed lender Silicon Valley Bank.

USDC is known as a stable coin, which means the value of the virtual currency is supposed to be pegged to a reference currency. USDC is designed to trade at $1, but it fell below 87 cents on Saturday, according to CoinDesk.

In a tweet Friday, Circle said it has $3.3 billion in remaining reserves at SVB. The company called for the continuity of the bank and said it will follow guidance from regulators.

THE BLOCK reported that crypto lender BlockFi has $227 million in “unprotected” funds in Silicon Valley Bank, according to a bankruptcy document, and may be in violation of U.S. bankruptcy law.

That $227 million is also not insured by the Federal Deposit Insurance Corporation since it is in a money market mutual fund, the U.S. Trustee overseeing BlockFi’s Chapter 11 bankruptcy case said in the filing. The standard deposit insurance amount is $250,000 per depositor, per insured bank for each account ownership category, according to the FDIC’s website.

THE BLOCK also reported that Circle, the crypto payments firm behind stablecoin USDC, confirmed late Friday evening that $3.3 billion of the cash backing its coin remain left with Silicon Valley Bank.

Circle, which had early tweeted that Silicon Valley Bank was among its six banking partners managing about 25% of the total reserves of USDC, was criticized by Crypto Twitter for not being more transparent about its exposure to the popular tech banker. In the wake of the original tweet, USDC de-pegged from $1, falling around 2% on certain decentralized finance platforms.

In my opinion, the collapse of SVB appears to have hit several cryptocurrency companies really hard. This was not something that occurred in the 2008 bank collapse, because cryptocurrency did not exist back then.

US Treasury Secretary Janet Yellen Spoke About SVB

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CNBC News posted a transcript of Treasury Secretary Janet Yellen on “Face The Nation”. Secretary Yellen spoke with Margaret Brennan. From the transcript:

Margaret Brennan: I want to get straight to it because the markets will soon reopen for trading. Does the government need to intervene and take emergency measures because of SVB’s failure?

Treasury Secretary Janet Yellen: Well, let me say America’s economy relies on a safe and sound banking system that can provide for the credit needs of our households and businesses. So whenever a bank, especially one, like Silicon Valley Bank with billions of dollars in deposits fails, its clearly a concern.

From the standpoint of depositors, many of which may be small businesses, they rely on access to their funds, to be able to pay the bills that they have, and they employ tens of thousands of people across the country. We’ve been hearing from those depositors and other concerned people this weekend.

So let me say that I’ve been working all weekend with our banking regulators to design appropriate policies to address the situation. I can’t really provide further details at this time. But what I do want to emphasize is that the American banking system is really safe and well-capitalized, it’s resilient.

In the aftermath of the 2008 financial crisis. New controls were put in place better capital and liquidity supervision, and was tested during the early days of the pandemic, and proved its resilience so Americans can have confidence in the safety and soundness of our baking system.

…Margaret Brennan: …Your counterpart in the United Kingdom has said that the government there has ruled out a bailout of the UK arm of Silicon Valley Bank. Have you also ruled out that kind of government intervention?

Treasury Secretary Janet Yellen: Well let me be clear that during the financial crisis, there were investors and owners of systemic large banks that were bailed out, and we’re certainly not looking. And the reforms that have been put in place means that we’re not going to do that again. But we are concerned about depositors and are focused on trying to meet their needs…

Financial Times reported some comments made by various people regarding SVB’s problems. Mitt Romney, the Republican senator from Utah, said depositors should “recover and have access to their deposits in order to meet their payrolls, pay their suppliers, and to prevent contagion.”

Andrew Yang, an entrepreneur and former Democratic presidential candidate, warned that “thousands of companies will fold or lay people off next week because of lack of access to accounts through no fault of their own”, and imploring the Treasury or the state of California to intervene.

Billionaire hedge fund investor Bill Ackerman issued one of the most urgent calls on Saturday, working of a run on all but the biggest banks should the government stop short of guaranteeing all of SVB’s deposits or the lender being acquired by JPMorgan, Citigroup, or Bank of America.

Politico reported that Rep. Josh Gottheimer’s office on Sunday began circulating a letter among lawmakers urging the FDIC, along with the Federal Reserve, Treasury and Office of the Comptroller of the Currency, to take steps to calm markets and offer SVB’s customers clarity.

The letter calls on the FDIC to identify a buyer for the failed bank, and asks the Federal Reserve and Treasury to encourage banks that have relationships with SVB depositors to extend emergency lines of credit to clients that need assistance covering essential costs.

The interesting thing about this situation, in my opinion, is that it certainly looks as though SVB is not going to get a bailout. That’s remarkably different than how failed banks were treated back in 2008.

Etsy Warns Of Delay In Processing Payments

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Etsy is warning sellers that the collapse of Silicon Valley Bank on Friday is causing delays in processing payments, according to an email from the company shared with NBC News.

The online do-it-yourself goods mega shop said it used SVB to facilitate disbursement to some sellers, and that it was working with other payment partners to issue deposits.

“We wanted to let you know that there is a delay with your deposit that was scheduled for today,” the email from Etsy said. “We know that you count on us to help run your business and we understand how important it is for you to receive your funds when you need them,” the email continued. “Please know that our teams are working hard to resolve this issue and send you your funds as quickly as possible.”

In a written statement Saturday, an Etsy spokesperson said the issue was related to “the unexpected collapse of Silicon Valley Bank”.

According to NBC News, the drama with SVB started earlier this week when the bank disclosed that it sold about $21 billion of securities and proposed to offer over $1 billion in shares, all to fundraise for “general corporate purposes.”

That move raised eyebrows among investors who pondered why SVB would need to raise so much money abruptly. It also worried depositors, many of whom suddenly wondered whether their money was safe and began pulling funds out.

Bloomberg (via Yahoo! Finance) reported Peter Thiel’s Founders Fund had no money with Silicon Valley Banks as of Thursday morning as the bank descended into chaos, according to a person familiar with the matter.

Founders Fund withdrew millions from SVB, said the person, who asked not to be identified discussing private information. It joined other venture funds that took dramatic steps to limit exposure to the now-failed financial institution. Founders Fund also advised its portfolio companies that there was no downside to moving their money away from SVB, even if the risk was low.

According to Bloomberg, Founders Fund acted in other ways to move its business away from SVB. On Thursday, as the bank was beginning to unravel, the firm started what’s known as a capital call. That’s a run-of-the-mill activity in the venture capital world, in which a VC firm asks its investors to make investments in startups – the core function of most VC firms. It began by asking those backers to transfer the funds to accounts at SVB, as it had done for years, the person said.

But the firm learned that its limited partners were encountering issues using SVB services as they tried to transfer the funds – they weren’t immediately going through as expected, the person said.

Quickly, Founders Fund asked its investors to transfer the money to the other banks instead. The fund acted to ensure that startup funding deals that were slated to close in the coming days were not delayed, the person said.

If I’m understanding this correctly, it appears that Peter Thiel’s Founders Fund – might – have been the start of SVB’s collapse. Or, at the very least, was the first to be aware that a collapse was going to happen.