What happened to Silicon Valley Bank (SVB) on March 10?
- The California Department of Financial Protection and Innovation took possession of SVB on Friday morning, March 10, 2023, and appointed the Federal Deposit Insurance Corporation (FDIC) as receiver for SVB.
- The FDIC created the Deposit Insurance National Bank of Santa Clara to hold the insured deposits of SVB.
What is the Deposit Insurance National Bank of Santa Clara?
- The Deposit Insurance National Bank of Santa Clara is an insured depository institution created to hold insured deposits of SVB.
- The Deposit Insurance National Bank of Santa Clara will be open for a limited time. The FDIC has not yet determined the end dates for automatic payment and bill pay, ATM/debit card, and debit deposits and Social Security.
Are my funds at SVB FDIC-insured?
- Deposits held at FDIC-insured depository institutions are insured up to $250,000 per depositor for deposits held in the same “right and capacity” (see below).
- Deposits carried on the books of records of a foreign office of a US bank, including those that are dually payable in the US or at a foreign office, are not FDIC-insured.
- Deposits at a foreign subsidiary of a US bank are not deposits of the US bank for any purpose and are not FDIC-insured. Clients with a relationship with Silicon Valley Bank UK should refer to our FAQ on Silicon Valley Bank UK insolvency.
- Deposits payable solely at a foreign office are not FDIC-insured, are not considered deposits of the bank for purposes of the Federal Deposit Insurance Act, and have a lower priority of payment in a receivership proceeding than the bank’s deposit obligations.
FDIC deposit insurance is based on the “right and capacity” in which a depositor holds a deposit. What does this mean?
- “Right and capacity” refers to the legal basis on which a deposit is owned. The ownership categories for determining right and capacity include:
- Single accounts
- Joint accounts
- Revocable trust accounts
- Irrevocable trust accounts
- Certain retirement accounts
- Employee benefit plan accounts
- Business/organization accounts
- Government accounts (public unit accounts)
- Accounts held by a depository institution as the trustee of an irrevocable trust
- All deposits of a depositor within a particular ownership category are aggregated and insured up to the $250,000 limit.
- Different legal entities, including affiliates, are generally considered separate depositors as long as they engage in “independent activity,” meaning the entity is operated primarily for some purpose other than to increase deposit insurance.
How can I access my FDIC-insured funds at Deposit Insurance National Bank of Santa Clara?
- According to the FDIC, all insured depositors will have full access to their insured deposits no later than Monday morning, March 13, 2023. Also according to the FDIC, banking activities will resume no later than March 13, including online banking and other services.
I have funds in excess of $250,000 at SVB. What happens to them?
- The excess uninsured deposits and other obligations of SVB will remain obligations of the receivership estate and will be paid when, as, and if there are funds available from the sale of SVB’s assets to satisfy such obligations.
What is the advance dividend?
- The advance dividend is a payment equal to a portion of a customer’s uninsured funds.
When will I receive the advance dividend?
- The FDIC indicated that a payment will be made this week.
- Based on past patterns of dividend payments by the FDIC, the advance dividend could be from 20% to as much as 60% of uninsured deposits.
Do I need to file a claim form?
- If you provided a service or product, leased space, furniture, or equipment to SVB prior to March 10, 2023, and have not been paid, you may have a claim against SVB, which may be submitted online or by mail.
Do depositors need to file a claim form?
- That’s not clear yet. While the FDIC’s press release of March 10 suggested that depositors with accounts in excess of $250,000 should contact the FDIC via a toll-free telephone number, we understand that depositors that have done so have had limited success in getting through.
- As of March 11, the FDIC’s claims portal presents incomplete information.
What is the order of priority in which creditors of SVB will be paid?
In general, the order of priority is as follows:
- Secured creditors to the extent of their perfected security interest
- General creditors (including depositors holding deposits payable solely at a foreign office)
- Subordinated creditors
- Equity holders (e.g., parent holding company)
What can I do to improve the priority of my claim?
All depositors are on the same footing.
Will the government step in and bail out SVB?
We believe that is unlikely.
Will an acquirer rescue SVB?
It is possible that one or more other banks may acquire assets of SVB.
I’m a borrower of SVB. Can I draw on my committed line of credit or other committed credit facility?
- The FDIC has authority to repudiate contracts in certain circumstances, which would enable it to avoid extending additional credit under existing lines of credit and credit facilities.
- While it is possible that the FDIC may transfer and assign credit facilities to a third party that may be willing to honor existing credit commitments, we do not have any specific information as to whether that may happen.
I had a money market account at SVB. Is it a deposit or a money market mutual fund? What’s the difference?
- A money market deposit account (or money market savings account) is a type of deposit account. Funds held in a money market deposit account are deposit obligations of a bank.
- By contrast, shares of a money market mutual fund represent an interest in a mutual fund and are not bank deposits. If the relevant account documentation establishes that a bank is acting as agent or custodian for the customer, a customer should be entitled to return of the mutual fund shares.
- A customer can determine whether it is holding a money market deposit account or money market mutual fund shares by looking at account documentation and statements. A money market deposit account would typically be subject to a deposit account agreement.
I tried to wire funds on Thursday or Friday but have not received the funds yet. What’s the status?
- If a customer requested a wire transfer prior to SVB’s failure and the funds did not leave SVB prior to the cutoff time established by the FDIC when it closed SVB, then the funds most likely represent a deposit obligation of SVB.
I wired funds out of SVB prior to it being closed. Can the FDIC claw back the wire transfer?
- The Federal Deposit Insurance Act does not include an authority for the FDIC to require repayment of funds withdrawn from an insured institution prior to its failure; however, the FDIC could seek to reclaim funds in the event of a fraudulent transfer or if a customer did not have a legal right to order to the withdrawal.
I had a money market mutual fund sweep agreement with SVB. Are my funds safe?
- As long as a customer’s sweep agreement clearly establishes that SVB was holding mutual fund shares as the customer’s agent, the agreement should enable the customer to claim that it owns the money market mutual fund shares.
- Customers that transacted in mutual fund shares in the days leading up to SVB’s failure may be holding deposit obligations of SVB and not mutual fund shares. In particular, it is common for funds in sweep account programs to remain at the bank overnight. Funds swept out of deposit accounts at SVB prior to its failure for investment in money market mutual fund shares would be considered deposits if the trade did not settle with the mutual fund before SVB’s failure. Similarly, funds from a redemption of mutual fund shares occurring prior to SVB’s failure may be considered deposits.
Can I instruct the mutual fund company or its transfer agent to move my mutual fund shares to another bank custodian or broker or redeem the shares and send the funds to another bank?
- No. Bank sweep programs are typically structured so that the bank holds the mutual fund shares as an intermediary, with ownership registered on the books of the mutual fund’s transfer agent in the name of the bank acting as agent and/or custodian. In this case, the mutual fund company and its transfer agent would not recognize the customer’s interest in the shares. It is necessary to work through the FDIC or its assignee to obtain access to the mutual fund shares.
I had an investment management account with SVB with custody at another bank. Are my funds safe?
- As long as the account documentation clearly establishes that SVB was holding the assets as the customer’s agent, the agreement should enable the customer to claim that it owns those assets.
I had an overnight repo sweep arrangement with SVB. Are my funds safe?In a properly executed repo sweep arrangement, the customer should have a perfected interest in government securities at the close of the bank’s business day and not a deposit obligation of the bank. However, there are two very important risks to consider.
- The FDIC generally respects a bank’s customary cut-off times for purposes of determining end-of-day deposit ledger balances. However, in its receivership rules, the FDIC has reserved the right to establish an earlier cut-off time, which means a repo sweep may not have been properly completed before the cut-off time in the event of failure. In addition, the time preceding a bank failure can be chaotic, which creates operational risk and the possibility that a repo sweep may not have been properly created before the bank failed. Funds remaining at the bank that were not invested in government securities when the bank failed are deposits.
- Funds swept into repos are generally swept back to the bank the following morning, which would create daylight exposure if the bank fails while the funds are on deposit.
What happens to wires and payments that come into SVB following the FDIC takeover?
- Payments that come into SVB post-receivership should be credited to the customer’s account.
I have an SVB credit card and it won’t work. What can you tell me?
- We don’t have any specific information about SVB-branded credit cards. It is possible that the FDIC could locate a credit card issuer that is willing to acquire the card accounts and related receivables and continue to service them.
I’m holding funds in an account at SVB that is maintained “for the benefit” of customers or third parties. Is “pass through” deposit insurance available?
- A person acting as an intermediary for third parties and holding funds in a fiduciary, custodial, or nominee capacity for others in a deposit account at an FDIC-insured depository institution can use “pass-through” deposit coverage to increase the amount of available deposit insurance covering the account. Pass-through coverage means that the FDIC will look through the nominal depositor and recognize the interest of each beneficial owner of the funds for purposes of determining the amount of deposit insurance available.
- An intermediary that believes pass-through coverage is available must submit information to the FDIC in order to establish a claim for pass-through coverage.