A Quick Take On A Sudden Change In The Banking Landscape

• Jurisdiction: California,United States,Federal
• Law Firm: Cadwalader, Wickersham & Taft LLP
• Subject Matter: Corporate/Commercial Law, Wealth Management, Insolvency/Bankruptcy/Re-structuring, Insolvency/Bankruptcy, Contracts and Commercial Law, Wealth & Asset Management
• Author: Ms Ingrid Bagby, Kathryn Borgeson, Christopher Dickson, Brian Foster, Jason Halper, Howard Hawkins, Jr., Ellen V. Holloman, Ivan Loncar, Michele Maman, Daniel Meade, Bevis Metcalfe, Alix Prentice, Jared Stanisci, Lary Stromfeld, Mercedes Kelley Tunstall, Eric G. Waxman, Anthony Greene and Joseph Polonsky
• Published date: 20 March 2023

A lot of ink has been spilled in the last 72 hours regarding the historic developments involving Silicon Valley Bank and Signature Bank. Our quick summary of the facts and law is below. Cadwalader will continue to monitor these developments closely and will update you with additional insights.

We note that these are general views only and are not intended as, and should not be construed as, legal advice. Each individual person or entity's circumstances are different and would need to be taken into account in providing legal counsel. Please do not hesitate to contact your Cadwalader team or any of the Cadwalader attorneys listed below for advice that is tailored to your facts and circumstances.

Factual Background

1. On March 10, 2023, the California Department of Financial Protection appointed the Federal Deposit Insurance Corporation (the "FDIC") as receiver for Silicon Valley Bank ("SVB").
   
   1. SVB is the California bank subsidiary of SVB Financial Group SVB is a member of the FDIC and the Federal Reserve System.
   2. To protect insured depositors, the FDIC created the Deposit Insurance National Bank of Santa Clara ("DINB"), and immediately transferred to DINB all insured deposits of SVB.
2. Also on March 10, 2023, the Bank of England acting with the UK's banking regulator the Prudential Regulation Authority (the "PRA") announced that 'absent any meaningful further information' it intended to apply to Court to place Silicon Valley Bank UK Limited ("SVBUK") into a Bank Insolvency Procedure under the Banking Act 2009, effectively shutting it down.
3. On March 12, 2023, the New York State Department of Financial Services appointed the FDIC as receiver for Signature Bank ("Signature").
   
   1. The FDIC created Signature Bridge Bank, N.A. ("Signature Bridge Bank"), and immediately transferred all the deposits and substantially all of the assets of Signature to Signature Bridge Bank.
   2. The FDIC named Greg D. Carmichael (who recently served as president and CEO of Fifth Third Bancorp) as CEO of Signature Bridge Bank.
4. On March 12, 2023, on the recommendation from the Boards of the FDIC and the Federal Reserve, the FDIC approved "systemic risk exceptions" ("SRE") for SVB and Signature. Treasury Secretary Yellen, after consulting with President Biden, per the statutory requirements for an SRE, agreed to grant an SRE for the first time since 2008.
   
   1. The SRE allows for a resolution that fully protects all depositors, and is not limited to insured deposits (which previously were limited to $250,000 per depositor).
   2. All depositors of SVB and Signature will be made whole Shareholders and certain unsecured debtholders will not be protected. The FDIC announcement emphasized that no losses will be borne by taxpayers, and any losses to the Deposit Insurance Fund will be recovered by a special assessment on banks, as required by law. Specifically, the SRE system provides that each insured depository institution that receives protection from the FDIC will be assessed a surcharge to cover the deposit amounts that were not actually insured as of the time SVB/Signature failed.
5. On March 13, 2023, the FDIC announced that it was transferring all deposits, both insured and uninsured, and substantially all assets of SVB to a newly created, full-service FDIC-operated "bridge bank" (the "SVB Bridge Bank"), and named Tim Mayopoulos as CEO of SVB Bridge Bank.
   
   1. The receiver for Silicon Valley Bank has also transferred all Qualified Financial Contracts (as defined in 12 USC 1821(e)) of the failed bank to SVB Bridge Bank.
6. Also on March 13, 2023, the Bank of England in consultation with the PRA, HM Treasury and the Financial Conduct Authority announced that HSBC UK Bank Plc had acquired SVBUK.
   
   1. SVBUK continues to be a PRA authorized bank, all services function as normal and customers can contact SVBUK through their usual channels.

Appointment of the FDIC as Receiver

1. The Federal Deposit Insurance Act (the "FDIA") governs the receivership of financial institutions whose deposits are insured by the FDIC.
   
   1. The laws of most states include provisions for state administered insolvencies of state chartered banks, but in practice the FDIC almost always is appointed receiver. Under applicable federal law, the...