Feds hold auction for failed Silicon Valley Bank, move to protect uninsured depositors

Federal regulators are holding an auction for Silicon Valley Bank with bids due Sunday afternoon and are also taking action to backstop uninsured deposits at the failed bank.

Silicon Valley Bank (SVB), which was the nation’s 16th-largest bank prior to its insolvency last week, had been a go-to financial institution for Silicon Valley technology firms and companies backed by the area’s venture capital sector. It failed amid a liquidity crunch that came about as depositors needing cash withdrew funds, which forced the bank to sell bonds at a loss to cover withdrawals and stymied the firm’s efforts to raise additional capital to stave off the bank run.

The Federal Deposit Insurance Corporation (FDIC), which took SVB into receivership Friday when the bank closed, is holding an auction with the Treasury Dept. and other regulators to find a buyer for the bank as quickly as possible. Bids in the auction, which began Saturday and was first reported by Bloomberg, are due by Sunday at 2 p.m. Eastern Time.

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It’s unclear whether the auction will be successful or when the results of the auction will be made public, although it’s possible that it could be announced as early as late Sunday.

In a move to stave off concern that SVB’s insolvency could prevent start-ups and other businesses that had uninsured deposits with the failed bank from making payroll or continuing their operations, the FDIC in concert with the Treasury Dept. and Federal Reserve announced a systemic risk backstop under which all SVB depositors will be protected.

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Typically, the FDIC insures deposits up to $250,000 and even before the backstop was announced, insured depositors under that threshold were going to have full access to their deposits as of Monday morning, March 13, 2023. 

Prior to the announcement, there was uncertainty as to how quickly uninsured deposits would be accessible and what limits there might be on the amounts of funding available to those customers who might otherwise lose some or all of the uninsured funds.

Federal Reserve Chairman Jerome Powell, Treasury Secretary Janet Yellen, and FDIC Chairman Martin Gruenberg wrote in a joint press release Sunday that they are taking actions "enabling the FDIC to complete its resolution of Silicon Valley Bank, Santa Clara, California, in a manner that fully protects all depositors. Depositors will have access to all of their money starting Monday, March 13."

SILICON VALLEY BANK SHUT DOWN BY REGULATORS

The regulators wrote that under this systemic risk exception to the FDIC’s insurance threshold, "No losses associated with the resolution of Silicon Valley bank will be borne by the taxpayer." 

"Shareholders and certain unsecured debtholders will not be protected. Senior management has also been removed. Any losses to the Deposit Insurance Fund to support uninsured depositors will be recovered by a special assessment on banks, as required by law," they added.

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At the end of 2022, Silicon Valley Bank had about $209 billion in total assets and roughly $175 billion in total deposits. It’s unclear how much of those deposits were above the FDIC’s insurance threshold, as the agency wrote in its press release announcing the receivership, "At the time of closing, the amount of deposits in excess of the insurance limits was undetermined. The amount of uninsured deposits will be determined once the FDIC obtains additional information from the bank and customers."

The special backstop will also apply to another bank that was shuttered over the weekend, New York-based Signature Bank.