Client Alert: Silicon Valley Bank Takeover: What You Need to Know

SVB Takeover Background

On Friday, March 10, 2023, Silicon Valley Bank (SVB) was closed by the California Department of Financial Protection and Innovation (DFPI) after numerous depositors ran to withdraw funds from SVB. The Federal Deposit Insurance Company (FDIC) was then named as receiver of SVB.

Following the weekend, on Monday, March 13, the FDIC issued a press release stating that all deposits, insured and uninsured, and most assets, had been transferred to Silicon Valley Bridge, N.A., an FDIC-operated, full-service “bridge bank.” This transfer is aimed at providing a level of protection to all SVB clients, who subsequently became clients of Silicon Valley Bridge Bank, N.A., by, among other things, providing clients full access to their funds; SVB official checks, direct deposits, and autopay accounts all now continue to clear. In addition, the FDIC also transferred all “qualified financial contracts” of SVB to Silicon Valley Bridge Bank, N.A. These contracts include any securities contracts, commodity contracts, letters of credit (LOCs), and purchase agreements.

FDIC stated in its March 13th press release that all depositors of SVB will be made whole, but shareholders and some unsecured debt holders would not be protected. Yesterday FDIC posted updated FAQs on its website providing additional details for its depositors, borrowers and creditors.

SVB Going Forward

As of March 13, 2023, Silicon Valley Bridge Bank, N.A. is being managed by Tim Mayopoulos, the former CEO of Fannie Mae. In addition, Silicon Valley Bridge Bank, N.A. has created a restructuring committee which includes former SVB board members. This committee is responsible for finding a buyer for SVB, SVB Capital, SVB Securities, and SVB’s other assets and investments. Additionally, the committee will determine what to do with SVB Financial’s $3 billion in funded debt. See SVB Financial Group’s March 13, 2023, Form 8-K for reference.

Details for Counterparties: On March 14, 2023, Silicon Valley Bridge Bank, N.A. posted to its website further explanations and information regarding the impact of the transition to Silicon Valley Bridge Bank, N.A., including confirmation that it has assumed the obligations and commitments of former SVB, including all of SVB’s loan positions, commitments to advance under credit agreements, and other duties under credit agreements. For example, this means that any Landlords holding LOCs issued by former SVB may now exercise draw rights on these LOCs through Silicon Valley Bridge Bank, N.A. under the same conditions as previously with SVB. Draws on any LOCs, including those issued by SVB, require conformance to the technical considerations of the specific LOC as well as the terms and conditions of the applicable document secured by the LOC (e.g., lease). There may be other specific factors to consider before drawing on or obtaining or requesting a replacement LOC.

Client Options Going Forward

SVB had 17 branches in California and Massachusetts. Thus, many businesses, institutions, non-profits, and individuals operating and/or residing in Massachusetts are directly affected by SVB’s closure. Below are just some initial options for those affected to consider.

• Major banks are establishing an expedited process to open at least one operating account per applicant to allow for transfer of funds into these accounts and then process payments out. Thus, SVB clients can open a new operating account at a large established banking institution. Landlord and Tenant clients who had LOCs with SVB could then acquire a replacement LOC with that new institution.
• Another option to ensure the safety of deposits is to move deposits across several banks so as not to have amounts in excess of the FDIC insured limit of $250,000 in any one bank. As a general matter, insured deposit accounts, including checking, interest bearing savings, and money market accounts are insured by the FDIC in the aggregate up to $250,000, per depositor, for each insured bank, for each legal “ownership category”. In other words, if a particular client has a number of separate purpose entities (SPEs), each with their own set of operating accounts, then in that case, each SPE’s accounts would be protected up to the FDIC insured limit.

Considerations for Depositors of Other Institutions

Signature Bank Takeover: The New York State Department of Financial Services announced on March 12, 2023, that it had taken over Signature Bank and appointed the FDIC as the receiver. FDIC subsequently announced that it had created Signature Bridge Bank, N.A., as Signature Bank’s successor – similar to the bridge bank created for SVB. Signature Bank activities have resumed as of Monday March 13, 2023. In addition, the FDIC has announced that all Signature Bank depositors will be made whole.

DIF Member Banks: Depositors of certain Massachusetts community banks are insured through the Depositors Insurance Fund in addition to the standard $250,000 in FDIC insurance. Thus, these depositors of DIF member banks are insured through the FDIC up to $250,000, and any additional deposits are insured through the DIF.

About the Authors

Jack Anetakis is Chair of the firm’s Commercial Finance Practice Group, Carla M. Moynihan is Chair of the firm’s Real Estate Department, and C. Forbes Sargent III is Chair of the firm’s Corporate Department.