In a move that will surely be welcome news to uninsured depositors of Silicon Valley Bank (SVB), which was closed by bank regulators early Friday, March 10, 2023, Secretary of the Treasury Janet L. Yellen, Federal Reserve Board Chair Jerome H. Powell, and FDIC Chairman Martin J. Gruenberg announced earlier this evening, Sunday, March 12, 2023, in a joint statement a resolution of the Deposit Insurance National Bank of Santa Clara (DINB) that protects all depositors.
To assist clients, we have formed a task force of lawyers from our Emerging Companies and Venture Capital, Finance, and Securities and Capital Markets Groups to monitor developments and provide strategic counsel. This alert follows up on our prior FAQ on this topic.
The following FAQs are intended to help navigate some of the complex legal issues that arise from this development.
What Funds Are Covered by the Systemic Risk Exception?
The joint statement announced that amounts in all deposit accounts are being protected, notwithstanding the $250,000 FDIC insurance limitation. Shareholders, debtholders, vendors, and trade creditors of the failed bank will not receive the same protections.
Generally speaking, whether you were an insured or uninsured depositor of SVB
- your funds are safe;
- you will have access to some if not all of your funds starting tomorrow, March 13, 2023; and
- if you are an uninsured depositor, you will not be issued a receivership certificate or forced to wait for the FDIC to sell the failed bank’s assets to access your deposits.
What If I Was a Loan Customer of SVB?
At this time, your loan remains with DINB, and you remain obligated to pay all principal and interest owing under the terms of the loan. If you were required to keep deposits at SVB as security for your loan, you will have to maintain those deposits or be deemed in breach of your loan agreement. Although the FDIC has not found another bank to acquire the assets of SVB or assume its deposit liabilities, that could happen at any time. In the meantime, you remain obligated to DINB.
How Is My Ability to Use My Account to Fund Payroll or Other Obligations Impacted?
According to the joint statement, protected funds should be available starting Monday, March 13, 2023. Thus, we expect that this will address many customers’ near term liquidity issues related to payroll and other payment obligations.
Can I Withdraw All of My Deposits on Monday?
It is unknown how easy it will be to withdraw funds in the next week. Although, as noted above, protected funds should be available starting Monday, March 13, 2023. We would expect processing delays as to withdrawal requests. From the FDIC’s perspective, a quick migration of depositors inhibits its ability to resolve the bank in a cost effective manner. Prospective bidders will be less interested in assuming SVB’s deposits and acquiring its assets if a large portion of its customers have walked out the door. In addition, the demands of concerned customers are likely to outweigh the resources the FDIC can bring to bear to handle demands made to DINB. Patience will be required in the short term.
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