Federal Government Announces Steps to Fully Protect Depositors of Silicon Valley Bank and Signature Bank and Establish a New Emergency Bank Liquidity Facility

March 12, 2023

This evening, the Treasury, Federal Reserve and FDIC made several major announcements related to Silicon Valley Bank (SVB), and the banking industry more generally.

The announcements included few details, but included the following key points:

  • The Treasury has approved a systemic risk exception permitting the FDIC to complete the resolution of SVB in a manner that “fully protects all depositors”.  The release states that “[d]epositors will have access to all of their money starting Monday, March 13.”
  • A similar systemic risk exemption will apply to protect depositors of Signature Bank, after the New York Department of Financial Services took possession of the bank and appointed the FDIC as receiver.
    • The FDIC announced it had transferred all the deposits and substantially all of the assets of Signature Bank to Signature Bridge Bank, N.A., a full-service bank that will be operated by the FDIC as it markets the institution to potential bidders.
  • In both cases, the releases state that no losses will be borne by taxpayer, and that “[a]ny losses to the Deposit Insurance Fund to support uninsured depositors will be recovered by a special assessment on banks, as required by law.”
    • The resolutions of SVB and Signature Bank were approved under the systemic risk exemption to the usual requirement that the FDIC adopt a least cost resolution strategy.  It is not an exercise of the FDIC’s Orderly Liquidation Authority under Title II of Dodd-Frank.
    • The releases do not provide further details on how the resolution of SVB or Signature Bank will progress, including whether and when a whole bank deal may be announced.
  • The Federal Reserve announced that it will create a Bank Term Funding Program (BTFP), supported by a $25 billion backstop from the Exchange Stabilization Fund approved by the Treasury Secretary. 
    • According to the Federal Reserve’s initial statement, the facility will offer loans of up to one year in length to eligible depository institutions pledging U.S. Treasuries, agency debt and mortgage-backed securities, and other qualifying assets as collateral.
    • Importantly, the BFTP will value qualifying collateral at par, eliminating the haircut that institutions might face if they sought to sell securities on the open market.
    • Key terms of the BFTP, as discussed in the Federal Reserve’s initial terms sheet, include:
      • Borrower eligibility:  Any U.S. federally insured depository institution (including a bank, savings  association, or credit union) or U.S. branch or agency of a foreign bank that is eligible for primary credit.
      • Eligible Collateral:  Any collateral eligible for purchase by the Federal Reserve Banks in open market operations, provided that such collateral was owned by the borrower as of March 12, 2023.
      • Collateral Valuation:  The collateral valuation will be par value. Margin will be 100% of par value
      • Advance Size:  Limited to the value of eligible collateral pledged.
      • Rate:  One-year overnight index swap rate plus 10 basis points, fixed for the term of the advance on the day the advance is made.
      • Term:  Up to one year.
      • Recourse:  Advances will be made with recourse beyond the pledged collateral to the eligible borrower.
      • Program Duration: Advances can be requested until at least March 11, 2024.
  • The Federal Reserve also announced that margins for the discount window will be set at the same margins used for securities eligible for the BTFP, “further increasing lendable value at the window.”

Separately, a consortium of private equity firms led by the Bank of London announced on Sunday evening that they had submitted a formal acquisition proposal in respect of SVB’s UK subsidiary.

For additional information, please see:

  • Treasury, Federal Reserve and FDIC Joint Statement (link)
  • Federal Reserve Press Release Regarding the BTFP (link)
  • BTFP Term Sheet (link)
  • New York Department of Financial Services Press Release Regarding Signature Bank (link)
  • FDIC Press Release Regarding Signature Bank (link)

Clients with questions about SVB or related developments should reach out to any of their regular contacts at Cleary Gottlieb or any of the partners or counsel listed on our website under Banking and Financial Institutions or Bankruptcy and Restructuring.

Additional Cleary Gottlieb content regarding SVB and related developments can be found here.

Cleary Gottlieb is a trusted resource in the financial sector for clear and up-to-the-minute guidance on the evolving regulatory landscape. Our preeminent banking and bankruptcy and restructuring practices have been intimately involved advising the private sector and governments in times of crisis, including the 2008 financial crisis and in the federal government’s actions to stabilize the economy during the COVID pandemic. We have extensive experience advising banking institutions and their depositors, creditors, and investors through the FDIC resolution process.