On March 10, 2023 the California Department of Financial Protection & Innovation declared Silicon Valley Bank (“SVB”) insolvent and appointed the FDIC as receiver. Simultaneously, the FDIC created the Deposit Insurance National Bank of Santa Clara to facilitate access to SVB deposits insured by the FDIC.
For those of us who worked through the Financial Crisis of 2007-2009 on behalf of large financial institutions and companies, having a very large bank fail in a matter of 48 hours has all the earmarks of a “here we go again” moment. However, this time contagion is significantly less likely given the safeguards and tighter controls put in place in the financial system in the aftermath of the Financial Crisis. However, those topics, how we arrived at this moment, and what options there may be, will be the subject of forthcoming posts.
Today we focus only on the practical implications for customers and creditors of SVB based on what we know already, recognizing that the situation will continue to evolve.
Who Will Have Access to Funds Starting March 13, 2023?
- As of Monday March 13, Insured Depositors will have access to their insured deposits up to $250,000.
- Sometime during the week of March 13, holders of uninsured deposits (i.e., deposits over $250,000) will receive an “advance dividend” which will be for a portion of the amount of uninsured deposits such holders have at SVB. What percentage of such holders’ uninsured deposits will be covered by advance dividends has not been disclosed.
What Happens to Deposits Not Paid During Week of March 13, 2023?
- For the portion of deposits not paid by the FDIC during the week of March 13, the FDIC will issue a receivership certificate for the unpaid amount. Any recovery under the receivership certificate will depend on the FDIC’s liquidation of SVB assets and the timing thereof. This could take months or years if a buyer for SVB does not emerge.
In What Order Will the FDIC Pay?
- Secured Creditors
- FDIC Expenses
- Insured Deposits
- Advances Against Uninsured Deposits
- Receivership Certificate Holders
- Remaining Creditors
What if Payroll Is Coming Up?
- The FDIC has not issued specific guidance regarding payroll. However, companies need to get a handle on their upcoming payroll obligations and any funding sources available. Unfortunately, the FDIC has also not yet provided guidance on the advance payments it will make next week. Please consult with your employment counsel on what your specific obligations are, including disclosure in the states in which you have payroll obligations.
SVB Borrowers
- The FDIC will step into the shoes of SVB and will expect borrowers to continue to meet their obligations under their loans or other debt instruments in a timely manner.
Disclosure Requirements
- To the extent you are subject to disclosure requirements because of your status as a public company, financial institution, or otherwise, those requirements, including the timing and standards for when to disclose are not changed by SVB’s insolvency. Depending on the impact of the SVB failure on your business the materiality of that impact against those disclosure requirements must be carefully evaluated.
Our Experience
- During the Financial Crisis of 2007-2009 and its aftermath, our Managing Partner, Michael Macaluso worked on multibillion-dollar/euro government bailouts in the U.S. and Europe including restructurings and workouts of financial institutions, funds, programs, and complex instruments. Clients called on teams led by Mr. Macaluso from the inception of the capital markets crisis. He assisted global banking institutions in the U.S. and Europe, issuers, sponsors of complex instruments and investment funds in maintaining, obtaining and, in some cases, restructuring or otherwise working out privately and through government programs over $150 billion of liquidity.
See Macaluso LLP/Experience/Capital Markets
Contact Information
If you have any questions or would like more information, please contact:
Michael Macaluso
Jack Cahill