The U.S. Federal Deposit Insurance Corporation (FDIC) announced on Monday that First Citizens Bank & Trust Co. would purchase the deposits and liabilities of Silicon Valley Bank.
According to a statement by the FDIC, the acquisition involves buying about $72 billion in assets from Silicon Valley Bank at a $16.5 billion discount.
Details of the Silicon Valley Bank Buyout Deal
The purchase and assumption agreement includes 17 former branches of Silicon Valley Bridge Bank. Post the deal, they will open as First–Citizens Bank & Trust Company on March 27.
As of March 10, the tech-focused bank reportedly had around $167B in assets and about $119B in total deposits.
The statement revealed,
“The FDIC estimates the cost of the failure of Silicon Valley Bank to its Deposit Insurance Fund to be approximately $20 billion. The exact cost will be determined when the FDIC terminates the receivership.”
The FDIC will continue to protect the deposits up to the insurance limit after the First Citizens Bank acquisition. Earlier this month, HSBC purchased Silicon Valley Bank’s U.K. division for £1. The subsidiary acquisition assisted U.K. clients in securing over $8.1 billion in deposits.
First Citizens asserted that the combined company would maintain a strong financial situation and have a diverse loan portfolio and deposit base.
After the collapse of the Silicon Valley Bank, the FDIC established the Silicon Valley Bridge Bank, National Association. According to the FDIC, it was given equity appreciation rights in First Citizens’ common shares with a potential upside of $500 million.
SVB Bailout Not the Market Standard
The sectoral crisis forced central banks to assess their preparedness for more potential crashes. The market weakness also prompted UBS Group AG to make a bid for the international investment bank Credit Suisse.
However, the banking failures and subsequent actions by authorities until now don’t ensure future bailouts above the FDIC insurance threshold.
This past week, Treasury Secretary Janet Yellen said that deposits would only be covered in cases of systemic risk and significant negative economic impact.
Per the Failed Bank List by the FDIC, ten banks have failed since 2019.
SVB Financial Group filed for Chapter 11 Protection last week after the failure of its banking arm. The bank’s closure unveiled unprecedented turmoil that was last experienced in 2008 during the Global Financial Crisis.
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