Silicon Valley Bank Shut Down in the Second Largest Bank Failure
On March 10, 2023 it was announced that Silicon Valley Bank (“SVB”) effectively “collapsed.” On that day, agents from the Federal Reserve and the Federal Deposit Insurance Corporation (“FDIC”) assessed SVB’s finances, and the state regulatory agency issued an order taking possession of SVB citing inadequate liquidity and insolvency. State regulators revoked SVB’s charter and transferred the business into receivership under the FDIC. It was further announced that the FDIC created a new deposit insurance national bank, called the Deposit Insurance National Bank of Santa Clara, to re-open the SVB’s branches on March 13, 2023 and enable access to insured deposits. On March 13, 2023, the FDIC transferred SVB assets to a new bridge bank, Silicon Valley Bank, N.A. SVB’s failure was the largest bank failure since the 2007–2008 financial crisis by its assets, and the second-largest in U.S. history since that of Washington Mutual. Moreover, in December 2022 regulatory filings estimated that more than 85% of SVB deposits were uninsured.
Silvergate Bank Liquidates and Signature Bank Closes in the Third-Largest Bank Failure
After Silvergate Bank announced on March 8, 2023 that it would liquidate and following SVB’s collapse on March 10, 2023, the New York State Department of Financial Services closed Signature Bank on March 12, 2023. Signature Bank customers reportedly withdrew more than $10 billion in deposits in what has become the third-largest bank failure in U.S. history. The FDIC was appointed as Signature Bank’s receiver and established Signature Bridge Bank, N.A., to operate as it marketed its assets to bidders. As of December 2022, 90% of Signature Bank’s deposits exceeded the maximum insured by the FDIC.
Other Banks May Be Next
Since SVB’s collapse, several other banks have been mentioned in the news for facing potential issues similar to those of SVB and Signature Bank. Many are speculating which banks will be next to succumb to continued liquidity concerns as well as pressure from declining share value.
How to Protect Yourself
R&E is actively monitoring this situation. We are working with clients to assess their risks and rights and to formulate strategies for landlords concerned about tenants’ liquidity and access to letters of credit, lenders and borrowers concerned about the access to deposits and liquidity, as well as other businesses concerned about the present and potential future impact of this historical string of bank failures. Furthermore, now would be a good time for you to conduct a review of any letter of credit security deposits you may have on file to not only check if you have any such letters of credit issued by the banks mentioned above, but to check the credit rating of any other issuing banks to determine if they conform with lease requirements. Feel free to contact R&E to assess your risks and rights, to assist with any lease review and to formulate strategies to best serve you.