1. What happened Friday?
a. The California Department of Financial Protection and Innovation closed Silicon Valley Bank (SVB) and appointed FDIC as receiver.
b. The Office of the Comptroller of the Currency (“OCC”) chartered a new national bank, Deposit Insurance National Bank of Santa Clara, which will serve as a “Bridge Bank” to facilitate customer access to insured deposits going forward.
c. Deposits were frozen on Friday. According to the FDIC’s release, “[a]ll insured depositors will have full access to their insured deposits Monday morning, March 13, 2023.”
d. According to the FDIC, an initial percentage of the uninsured deposits are expected to be paid in approximately one week. The FDIC has not indicated what that percentage is likely to be.
e. The procedures for accessing the insured deposits have not been announced.
2. Where are the deposits?
a. The FDIC has transferred the insured deposits in amounts not to exceed the insured limit of $250,000 per legal entity/individual to the Bridge Bank.
b. The FDIC has retained the uninsured deposits as part of the SVB receivership.
3. How does the FDIC determine the insurance limit?
a. By statute, the insurance limit is $250,000 per legal entity customer/individual.
b. A legal entity customer is defined as a legal entity that generally has a separate EIN number. The individual owners of the business are treated separately for FDIC insurance purposes.
c. For instance, for a legal entity that had $800,000 of deposits held at SVB spread among a checking account ($300,000), savings account ($300,000), and CD ($200,000):
i. $250,000 is fully insured, is now at the Bridge Bank and should be available Monday.
ii. $550,000 is the amount of the legal entity’s unsecured claim with the receiver.
d. If a depositor maintained a sweep account at SVB, it is possible that the FDIC will respect the sweeps and not treat those amounts as uninsured deposits, but this is not clear.
4. What is the order of preference among SVB creditors?
The order of preference for payment of claims with the FDIC as receiver is as follows: (1) secured creditors, (2) uninsured deposits, and (3) general creditors.
5. Is there a right of set-off if you have a loan and a deposit?
According to the FDIC guidance,
a. “[i]n the case of a delinquent loan, the FDIC will ‘set off’ the loan against the borrower’s deposits (if any) before paying deposit insurance.”
b. “[i]n the case of a non-delinquent loan, the depositor might elect to ‘set off’ the loan against his/her deposits in order to receive full value for any uninsured funds (i.e., funds in excess of the $250,000 insurance limit).”
c. “In either case, no ‘offset’ is possible unless the obligations are ‘mutual’ – meaning that the borrower and the depositor must be the same person or legal entity acting in the same legal capacity.”
6. What happens to any payments (wires/ACH/checks) that are outstanding?
Payments drawn on accounts are paid by the Bridge Bank; but, only up to the $250,000 insurance limit.
a. If a customer has outstanding payments in the amount of $240,000, the payments will be recognized by the Bridge Bank without issue.
b. If a customer has outstanding payments in the amount of $260,000, it is not clear how the payments will be processed by Bridge Bank.
7. What happened to loans made by SVB?
a. In typical resolutions, assets (loans) are generally transferred by sale to a successor bank which then administers the loan. It’s unclear when, how and to whom the FDIC will sell the SVB loans - to one bank or multiple banks.
b. Borrowers must continue making loan payments as they become due unless directed otherwise.
c. At this point, it is unclear whether lines of credit or other credit facilities will be honored by the successor bank.
