In a press release published on Friday, March 10, 2023,^[1] the Federal Deposit Insurance Corporation (FDIC) announced that the California Department of Financial Protection and Innovation had, as of the same date, closed Silicon Valley Bank (SVB) and appointed the FDIC as the receiver. The FDIC immediately created the Deposit Insurance National Bank of Santa Clara (DINB) and transferred all insured deposits previously held at SVB to the DINB.

The rights and responsibilities of the FDIC acting as a receiver are governed by the Federal Deposit Insurance Act.^[2]

1. I had deposit accounts at SVB. Are my deposits insured?

For insured banks, including SVB, the FDIC insures certain deposits in an amount of up to $250,000 per depositor for each account ownership category. If the same legal entity owns multiple accounts, then a total of up to $250,000 of bank deposits is insured for all the accounts. In general, each business that is a separate legal entity (for example, has a separate EIN) with deposit accounts will be insured up to the amount of $250,000.

The FDIC’s standard deposit insurance covers deposit accounts, including checking accounts, savings accounts, money market deposit accounts, and certificates of deposit. Foreign currency deposits are counted toward the insured amount of up to $250,000 for each depositor. The FDIC has provided the following guidance on converting the value to the equivalent in U.S. dollars: “Deposit insurance for such deposits will be determined in the amount of United States dollars that is equivalent in value to the amount of the deposit denominated in the foreign currency. The FDIC’s regulations provide that the exchange rates to be used for such conversions are the 12 PM rates (the “noon buying rates for cable transfers”) quoted for major currencies by the Federal Reserve Bank of New York on the date of default of the [insured depository institution]. If the deposit agreement specifies that some other widely recognized exchange rates are to be used for all purposes under that agreement, then the FDIC will use those specified rates for the conversions.”

Standard deposit insurance does not cover investments in stocks and bonds, mutual funds, life insurance policies, annuities, and other excluded products.

2. What happens to my insured deposits?

All insured depositors will have full access to their insured deposits no later than Monday morning, March 13, 2023. Banking services, including online banking, bill pay, and the ability to use checks, an ATM, and debit cards, will resume on Monday and remain available for a limited period of time (the precise length of time has not yet been announced). The main office and all branches of SVB will be open during normal business hours.

Depositors will be permitted to access insured funds and direct their disposition. The FDIC recommends writing a check for your available balance and depositing that check into an account at another financial institution as the quickest and easiest way to withdraw insured funds. Deposit accounts that are collateral for SVB credit facilities will continue to be held.

3. What happens to my uninsured deposits?

The FDIC will pay uninsured depositors an advance dividend within the next week. Depositors do not need to file a claim in order to receive their advance dividends. There is no certainty with respect to the amount of the advance dividend.

The FDIC press release states that “Uninsured depositors will receive a receivership certificate for the remaining amount of their uninsured funds. As the FDIC sells the assets of Silicon Valley Bank, future dividend payments may be made to uninsured depositors.”

Although the timing for any additional dividend payments is uncertain, the Federal Deposit Insurance Act charges the FDIC, in discharging certain of its duties as receiver, with the maintenance of essential liquidity and the prevention of financial disruption^[3] and authorizes the FDIC to “pay dividends on proved claims at any time.”^[4]

The Federal Deposit Insurance Act also sets forth a priority scheme for the payment of claims,^[5] which provides preferential treatment to depositors (both insured and uninsured) as compared with a bank’s other general unsecured creditors.

4. How do I establish a claim on my uninsured deposits? Is there a deadline?

Customers with accounts in excess of $250,000 are directed to contact the FDIC toll-free at 1-866-799-0959 to schedule a telephone appointment with an FDIC Claims Agent, and may be asked to complete certain forms or provide documentation so that the FDIC can make an insurance determination. As of Friday, March 10, wait times were extremely lengthy. On Monday, March 13, the FDIC will make available a claims portal where you may verify your account insurance status.

Generally, the FDIC does not require claims to be filed for deposit accounts. Deadlines may be set for other types of claims, but no deadlines have yet been set. While certain form proofs of claim exist on the FDIC website, the FDIC often creates a specific form with respect to each FDIC receivership. Any such form should be made available on the FDIC website once a deadline is set. When the FDIC does publish a notice with respect to any deadline for claims, by statute such deadline “shall be not less than 90 days after the publication of such notice.”^[6]

5. What happens to non-deposit accounts or investments in other financial products that were held at or through SVB?

Generally speaking, such products are not insured by the FDIC, and their treatment within the receivership process will vary based on the terms and conditions of the governing agreement and depending on SVB’s role relative to such products.

With respect to money market mutual funds or other securities that SVB swept cash into, the answer depends on the agreement governing the sweep arrangement and the record keeping by SVB, any intermediary such as a securities broker-dealer, and the transfer agent for the money market mutual funds or other securities. Typically, a high priority for the FDIC would be to sell SVB’s custody business to a successor trustee. After this, a successor custodian would likely assume SVB’s duties and rights under your custody agreement and facilitate access to the proceeds of redemptions or sales of these securities just as SVB did. If a purchase of money market mutual funds or other securities failed to settle before SVB collapsed, then the funds would never have been swept and would be treated as insured or uninsured deposits, depending on whether the $250,000 insurance limit had been exceeded. In summary, securities purchased in fully settled transactions held by SVB as the custodian are not lost if all institutions involved documented the requisite legal arrangements properly, but they may be unavailable for a period of time. How long that period will last is not yet clear.

6. I have a loan agreement with SVB as the lender. Do I need to continue to make payments?

The FDIC press release states that “Loan customers should continue to make their payments as usual.”Generally speaking, with the FDIC ‘stepping into the shoes of’ SVB, the borrower should expect that the principal, interest, and other obligations owed to SVB will be payable to FDIC, as receiver, or to its eventual successor. The FDIC has stated that it intends to sell all loans and will notify borrowers by mail in advance of any such sale.

The receivership does not accelerate or otherwise change the terms of your loan agreement.

7. Should I continue paying my SVB loans even though I have a claim for an uninsured deposit?

In general, loan customers should continue to make their payments as usual. In certain circumstances, a borrower that is also a depositor may offset an uninsured deposit owed to the depositor by SVB by reducing, dollar for dollar, the amount of a loan owed by the borrower-depositor to SVB.^[7] The ability to offset in this manner depends on the governing loan documents and deposit agreement and applicable (state) law. If you believe you may have an offset right, the FDIC requests that you make a telephone appointment with an FDIC Claims Agent at 1-866-799-0959 to discuss your situation. You may also wish to consult with an attorney regarding the potential to offset.

8. I have a line of credit with SVB. Can I continue to draw on it?

The FDIC has announced that all lines of credit will be permanently frozen as of closing on March 10, 2023. You will need to establish a new line of credit with a new bank.

9. SVB issued a letter of credit on my behalf or in my favor. Is the letter of credit still valid?

Letters of credit are typically treated as agreements that may be repudiated by the FDIC if burdensome. The FDIC must make its decision on repudiation within a reasonable time after its appointment as receiver. While awaiting this determination, it may be advisable to acquire a standby letter of credit from another financial institution. If your letter of credit is repudiated, we recommend that you consult with an attorney to determine whether you may have a claim for damages against FDIC stemming from such repudiation.

10. My business maintains its payroll accounts at SVB. How am I going to pay my employees next week?

To the extent that payroll liability exceeds the insured amount on deposit in such payroll accounts, and assuming that the advance dividend is also insufficient or not made available before needed to cover such payroll liability, employers are well advised to secure alternative funding sources.

If an employer is not able to locate an alternative funding source, the employer is subject to liability and penalties for failure to pay employees their earned wages on time. While an employer’s exposure varies depending on the applicable state law, some states subject employers to significant and severe penalties, such as double or treble damages and/or individual liability for the employer’s senior officers. Employers should review their employment paperwork, i.e., offer letters, employment agreements, employee handbooks, or other policies, in conjunction with consulting their legal advisors to work toward ensuring compliance with timely payment of wage laws.

11. What are the responsibilities of public companies in connection with the failure of SVB and the resulting receivership?

This question should be carefully discussed and considered with your securities counsel. For companies who determine that they are not materially affected, some are voluntarily releasing a Form 8-K or posting a statement on their website to that effect. For those that are materially affected, or potentially materially affected, many are evaluating the situation understanding the possibility that additional information may be provided in the immediate future. If disclosure is ultimately needed, those companies materially affected will need to consider a variety of facts and circumstances, including whether prior disclosures regarding cash runway, SVB milestone lending payments, access to SVB revolving facilities, and other similar matters should now be updated, whether this loss of access to capital, even if temporary, will require reductions in force that may trigger required Exchange Act Report disclosures and how the loss of cash, even if temporary, and any related public disclosure of this loss of cash may affect their ability to comply with lending covenants, contractual obligations, and exchange requirements, noting that Exchange Act Report disclosure or other disclosure may also be triggered in relation to these circumstances.

12. What happens next?

It’s impossible to know what’s next, but if history is our guide, there is a wide range of possible outcomes.

Bank insolvencies have sometimes been resolved almost immediately (e.g., with the ‘lock, stock, and barrel’ sale of the failed institution to another entity) or seen final dividends paid in less than six months. Other times, the duration from the closure of a bank to the distribution of a final dividend (although with interim distributions in between) has been a matter of years, rather than months. We remain optimistic that the FDIC will provide further clarifying information in the near future.

The sudden closure of SVB and the appointment of the FDIC as receiver is a rapidly developing situation, and this FAQ may be updated periodically as new information becomes available or the mechanics of the receivership position are clarified.

These FAQs are for general informational purposes only and do not and are not intended to constitute legal advice. Readers should contact their attorney to obtain advice with respect to any particular legal matter. No reader should act or refrain from acting on the basis of information on this site without first seeking legal advice from counsel in the relevant jurisdiction. Only your individual attorney can provide assurances that the information contained herein — and your interpretation of it — is applicable or appropriate to your particular situation.

Endnotes

[1] FDIC PR-16-2023. The FDIC subsequently updated its website to include failed bank information for SVB and responses to frequently asked questions.

[2] 12 U.S.C. § 1811 et seq.

[3] 12 U.S.C. § 1821(d)(4)(B)(i).

[4] 12 U.S.C. § 1821(d)(10)(B).

[5] 12 U.S.C. § 1821(d)(11).

[6] 12 U.S.C. § 1821(d)(3)(B)(i).

[7] See Federal Reserve Bank of Chicago, “U.S. Corporate and Bank Insolvency Regimes: An Economic Comparison and Evaluation,” on page 17.