Saturday, May 18, 2024

Has First Citizens Bank purchased all loans and deposits of Silicon Valley Bank?

The downfall of Silicon Valley Bank left a bitter taste in the banking system as panic selling escalated with fears of contagion. The US economy is not just battling illiquidity in banks but also working to help depositors who have parked their money with these lenders. The uninsured depositors are the hard-hit ones from the bank’s collapse. However, SVB has met its redeemer and that would be First Citizens Bank — a primary subsidiary of North Carolina-based First Citizens BancShares. Under the agreement, it is said, First Citizens will acquire all loans and deposits of fallen SVB. But will it really though?

In its statement on Monday, First Citizens said, it has entered into an agreement with the Federal Deposit Insurance Corporation (FDIC) to purchase out of FDIC receivership substantially all loans and certain other assets and assume all customer deposits and certain other liabilities of Silicon Valley Bridge Bank, N.A.

Under the agreement, First Citizens will assume SVB’s assets worth $110 billion, deposits of $56 billion, and loans of $72 billion. This is based on the latest information provided by FDIC.

Silicon Valley Bank, the second largest bank failure on American soil since the 2008 great financial crisis. FDIC was appointed as the receiver for SVB after the California department shut down the lender in mid-March.

Also, as part of the deal, First Citizens Bank will additionally receive an available line of credit from the FDIC for contingent liquidity purposes.

Further, First Citizens signed a loss share agreement with the FDIC to provide further downside protection against potential credit losses.

But FDIC’s latest data shows that SVB had more deposits than what First Citizens has acquired.

The US-government-backed insurer, FDIC, in its statement revealed that as of March 10, 2023, SVB, National Association, had approximately $167 billion in total assets and about $119 billion in total deposits.

FDIC stated that the transaction included the purchase of about $72 billion of Silicon Valley Bridge Bank, the National Association’s assets at a discount of $16.5 billion.

Additionally, FDIC said, “approximately $90 billion in securities and other assets will remain in the receivership for disposition by the FDIC.”

Also, FDIC received equity appreciation rights in First Citizens BancShares’ common stock with a potential value of up to $500 million.

The loss-share agreement between the First Citizens and FDIC is expected to — maximize recoveries on the assets by keeping them in the private sector; and to minimize disruptions for loan customers.

FDIC estimates the cost of the failure of Silicon Valley Bank to its Deposit Insurance Fund (DIF) to be around $20 billion. It said, “The exact cost will be determined when the FDIC terminates the receivership.”

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