US Agencies Issue Updates on Resolution of SVB and Signature Bank
US Agencies released multiple statements, including a joint statement that sets out recommendations for FDIC to complete the resolution of Silicon Valley Bank and Signature Bank; these US Agencies are the Board of Governors of the Federal Reserve System (FED), the Federal Deposit Insurance Corporation (FDIC), and the U.S. Department of the Treasury. The agencies highlight that depositors will have access to all of their money starting from March 13, 2023 and the taxpayer will not bear any losses associated with the resolution of Silicon Valley Bank and Signature Bank, with an exception of shareholders and certain unsecured debtholders that will not be protected. In another development, the Federal Housing Finance Agency (FHFA) issued an order that sets out instructions and guidance to provide testing scenarios for stress test reporting under section 165(i)(2) of the Dodd-Frank Act, with effect from March 07, 2023.
Below are additional highlights of the developments related to recent challenges and uncertainty in the banking sector in US:
- FDIC published a letter to all FDIC-insured financial institutions that sets out requirements to meet contractual obligations with recently established bridge banks. FDIC, recently established two bridge banks, Silicon Valley Bridge Bank NA and Signature Bridge Bank NA, to assume the deposits and obligations of the two failing banks. A bridge bank is a chartered national bank that operates under a board appointed by FDIC. The bride bank structure is designed to “bridge” the gap between the failure of a bank and the time when FDIC can stabilize the institution and implement an orderly resolution. All contracts entered into with banks, before they failed, and their counterparties were transferred into the bridge banks with FDIC as the receiver.
- Following the creation of Signature Bridge Bank NA to take over the operations of Signature Bank, FDIC entered into a purchase and assumption agreement for all deposits and certain loan portfolios of Signature Bridge Bank NA, with Flagstar Bank NA, Hicksville, New York, which is a wholly owned subsidiary of the New York Community Bancorp Inc, Westbury, New York. The 40 former branches of Signature Bank will operate under the Flagstar Bank NA of the New York Community Bancorp. Depositors of Signature Bridge Bank NA, other than cash depositors related to the digital-asset banking businesses, will automatically become depositors of the assuming institution.
- With regard to Silicon Valley Bridge Bank NA, FDIC decided to simplify the bidding process and expand the pool of potential bidders by allowing parties to submit separate bids for Silicon Valley Bridge Bank NA and its subsidiary Silicon Valley Private Bank. FDIC has extended the bidding process for Silicon Valley Private Bank by March 22, 2023 and for Silicon Valley Bridge Bank NA by March 24, 2023. In the meantime, Silicon Valley Bridge Bank NA continues to operate as a nationally chartered bank.
- FED announced that additional funding to eligible depository institutions will be made available to help assure that banks have the ability to meet the needs of all their depositors and ensure the ongoing provision of money and credit to the economy. The additional funding will be made available through the creation of a new Bank Term Funding Program, offering loans of up to one year in length to banks, savings associations, credit unions, and other eligible depository institutions pledging U.S. Treasuries, agency debt, mortgage-backed securities, and other qualifying assets as collateral. The Bank Term Funding Program will be an additional source of liquidity against high-quality securities, eliminating an institution's need to quickly sell those securities in times of stress. The Department of the Treasury will make available up to USD 25 billion from the Exchange Stabilization Fund as a backstop for the Bank Term Funding Program.
- In another related development, the U.S. Senator, Sherrod Brown, Chairman of the U.S. Senate Committee on Banking, Housing, and Urban Affairs issued a letter requesting a comprehensive review of the failures of Silicon Valley Bank and Signature Bank. In his letter, Senator Brown requested U.S. agencies to identify and mitigate any broader vulnerabilities in the banking system, strengthen the guardrails for banks to prevent failures and mitigate contagion and panic risks to protect consumers and small businesses. Senator Brown urged the US agencies to consider the magnitude of the uninsured deposits of banks and the role that social media-led coordination among customers played in causing or accelerating the failure; identify and close regulatory gaps, shortfalls, or failures by state or federal regulators that contributed to the banks’ failures, including with respect to capital, liquidity, stress testing, concentration risk, and risk management; and hold those responsible for these bank failures accountable for their actions.
- Joint Statement on Resolution of Bridge Banks
- Establishment of Signature Bridge Bank
- Establishment of Silicon Valley Bridge Bank
- FDIC Letter on Bridge Bank Obligations
- FDIC on Agreement with Flagstar Bank NA
- FDIC on Bidding Process for Silicon Valley Bank
- FED on Bank Term Funding Program
- US Senator on Review of Bank Failures
- FHFA Order on Stress Testing
Keywords: Americas, US, Banking, Basel, Dodd Frank Act, Reporting, Silicon Valley Bank, Signature Bank, Bridge Banks, Stress Testing, Liquidity Risk, Bank Term Funding Program, US Senate Banking Committee, Resolution Framework, FED, FDIC, US Treasury, FHFA
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