On Sunday evening, March 12, 2023, the US Department of the Treasury, Board of Governors of the Federal Reserve Board (Federal Reserve) and Federal Deposit Insurance Corporation (FDIC) released a joint statement announcing various actions to stabilize the US banking system, in light of the widely publicized failures of Silicon Valley Bank (SVB) and Signature Bank (Signature Bank), each of which was closed by their respective state chartering authorities, with the Federal Deposit Insurance Corporation (the FDIC) appointed as receiver.
The actions announced by the US Treasury and Federal Reserve include (1) enabling the FDIC to complete the resolution of SVB and Signature Bank in a manner that provides both insured and uninsured depositors with full access to their deposit accounts, and (2) making available additional funding through the Federal Reserve to eligible depository institutions to help assure banks have the ability to meet the needs of all depositors.
These actions follow the extraordinary events over the last several days resulting in the failure of SVB, Signature Bank and Silvergate Bank. While the root causes of these failures are still being analyzed, they appear to represent (at least in the case of SVB) a classic “run on the bank,” driven by a rising rate environment where securities held needed to be liquidated at a loss in order to stem the tide from unprecedented outflow of deposits.
This client alert highlights several practical considerations that financial institutions should undertake.