What actions did the US government take on Sunday with respect to Silicon Valley Bank (SVB) and Signature Bank?
On Sunday, March 12, the FDIC, the Federal Reserve, and the US Treasury Department announced that the US government had invoked the systemic risk exception to permit the FDIC "to complete its resolution of Silicon Valley Bank...in a manner that fully protects all depositors."
The systemic risk exception permits the FDIC to take actions to avoid or mitigate serious adverse effects on economic conditions or financial stability.
Also on Sunday, March 12, Signature Bank was closed.
All the deposits and substantially all the assets of SVB and Signature Bank were transferred to two newly-created bridge banks: Silicon Valley Bank, N.A. and Signature Bridge Bank, N.A.
What are Silicon Valley Bank, N.A. and Signature Bridge Bank, N.A.?
Silicon Valley Bank, N.A. and Signature Bridge Bank, N.A. are bridge banks. A bridge bank is an insured depository institution chartered under federal law that is organized for the purpose of assuming the insured deposits and certain assets of a failed bank and continuing the operations of the institution for a limited period of time.
Do depositors of SVB or Signature Bank have access to all their deposits?
Yes. FDIC press releases on Monday, March 13 said that depositors of SVB and Signature Bank would have access to their funds.
How can I access my deposits at SVB or Signature Bank?
Customers should be able to access deposits at SVB or Signature Bankin the same manner as they were able to access deposits prior to the receivership.
What is the status of additional funds wired to or deposited to accounts at SVB or Signature Bank?
Additional funds deposited after the receivership will be available to customers in accordance with the bank's funds availability policy.
I'm a borrower of SVB or Signature Bank. Can I draw on my committed line of credit or other committed credit facility?
We recommend that you reach out to your bank representative to discuss.
What is the status of SVB's international operations?
Deposits at SVB's UK subsidiary are not deposit obligations of SVB in the US. The US government's actions with respect to SVB do not relate to customers of the UK entity. Please refer to FAQ prepared by Goodwin's London Office for additional information concerning SVB UK.
We understand that SVB had a Cayman Islands branch office. The statements issued by the US regulatory authorities on Sunday do not explicitly address the status of deposits carried on the books and records of SVB's Cayman Islands office.
Are the deposits at my bank 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 rescue.
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.
I have a money market account at my bank. 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.
You can determine whether you have a money market deposit account or are holding 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 have a money market mutual fund sweep agreement with my bank. Are my funds safe?
As long as the sweep agreement clearly establishes that the bank 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.
I have an investment management account at my bank with custody at another bank. Are my funds safe?
As long as the account documentation clearly establishes that the bank was holding the assets as your agent, the agreement should enable you to claim that you own those assets.
I have an overnight repo sweep arrangement with my bank. 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.
I'm holding funds in an account 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.
These arrangements should be reviewed to ensure that they meet all applicable requirements.
What is the Bank Term Funding Program (BTFP)?
The BTFP is a liquidity facility being made available by the Federal Reserve System to enable any US federally insured depository institution (including a bank, savings association, or credit union) or US branch or agency of a foreign bank that is eligible for primary credit at the Federal Reserve to borrow funds.
Advances from the BTFP must be fully collateralized with eligible collateral and will be made with recourse to the borrower. The facility is being backstopped by up to $25 billion from the US Treasury Department's Exchange Stabilization Funds. Importantly, collateral valuation will be at par, which means financial institutions will be able to pledge securities to support borrowings without taking any haircut, even if the current market value of the securities pledged is below par. Eligible collateral includes US Treasuries, agency debt and mortgage-backed securities, and other qualifying assets. The facility will be available until March 11, 2024, and advances will have a term of up to one year.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.