SVB Shutdown: Where We Are and What to Expect Next

On March 10, 2023, the California Department of Financial Protection and Innovation shut down Silicon Valley Bank, leaving many SVB customers and counterparties with questions about next steps, including the status of their funds on deposit and their ability to conduct ongoing business.

The Federal Deposit Insurance Corporation was appointed receiver and created the Deposit Insurance National Bank of Santa Clara, to which all insured deposits with SVB were transferred. The FDIC also published a set of FAQs (here) providing information about the receivership and guidance for SVB clients on what will and will not be available in the short-term relating to insured and uninsured deposits, banking services, direct deposits, and outstanding loans. They provide, in summary:

• No special actions need be taken to access insured amounts—up to US$250,000 per depositor—beyond transferring such amounts to another financial institution via check or wire transfer. 
• If the sum of all your other accounts is greater than $250,000, depositors may contact an FDIC Claims Agent to schedule a telephone appointment with an FDIC Claims Agent as your accounts may require review. You may need to complete certain forms or provide documentation so the FDIC can make an insurance determination on the uninsured portion of your account(s).
• It may be possible to offset your uninsured amount against a loan in the same name as your uninsured deposit account.
• Loan payments should continue to be made to SVB; the FDIC intends to sell all loans, and will suspend foreclosure actions on most loans.
• While payments must still be made, all lines of credit—including home equity lines—are permanently frozen as of March 10, 2023, and clients should establish new lines of credit with new lenders.
• Certain services—among them personal checks, ATM/debit cards, new deposits, online banking, and bill pay—will resume Monday March 13. SVB clients are nevertheless advised to find a new bank as soon as possible; the FDIC is determining an end date for those services. Direct deposits, including Social Security deposits, were not interrupted and will continue, but clients are similarly advised to move these services to new banks.
• SVB-issued interest checks and cashier’s checks will clear until the DINB’s end date which has not yet been set.
• CDs with SVB will earn interest only through March 10, 2023; the FDIC has waived the early withdrawal penalty. IRA accounts with SVB are allowed 60 days for reinvestment into a new vehicle to qualify for income tax rollover.

While we expect significant movement in days to come, for now, depositors can expect the following:

• Depositors will have access to up to US$250,000 on March 13, 2023.
• The FDIC will pay an advanced dividend on uninsured amounts, generally pro rata by account, between March 13 and March 20, 2023. The amount of the advanced dividend as a proportion of deposits on account remains to be seen.
• No special actions need be taken to have access to insured funds or to the forthcoming advanced dividend.
• Transfers initiated prior to the bank’s closure are not subject to claw-back.
• After the FDIC pays the advanced dividend, the FDIC will issue receivership certificates to depositors for the remaining amount of their uninsured funds.
• Claims will be paid in the following order: (1) Depositors, (2) General Unsecured Creditors, (3) Subordinated Debt, and (4) Stockholders.
• The percentage of uninsured deposits paid in dividends to depositors varies. The history of dividends paid to depositors of failed banks can be found here.
• Clients with derivatives transactions (such as interest rate and foreign exchange swaps) with SVB or any of its affiliates should be reviewing their terms to see if they have a right to terminate.

We will continue to track the situation as it unfolds. We invite you to contact the authors of this alert or your O’Melveny relationship partner with questions. 

This memorandum is a summary for general information and discussion only and may be considered an advertisement for certain purposes. It is not a full analysis of the matters presented, may not be relied upon as legal advice, and does not purport to represent the views of our clients or the Firm. Jarryd E. Anderson, an O’Melveny partner licensed to practice law in the District of Columbia, New Jersey, New York, and Pennsylvania, Ike Chidi, an O’Melveny partner licensed to practice law in California, C. Brophy Christensen, an O’Melveny partner licensed to practice law in California, Peter Friedman, an O’Melveny partner licensed to practice law in the District of Columbia, Elizabeth L. McKeen, an O’Melveny partner licensed to practice law in California, Pamela A. Miller, an O’Melveny partner licensed to practice law in New York, Danielle Morris, an O’Melveny partner licensed to practice law in California, and Jonathan Rosenberg, an O’Melveny partner licensed to practice law in New York, contributed to the content of this newsletter. The views expressed in this newsletter are the views of the authors except as otherwise noted.

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