First Citizens To Acquire Failed Silicon Valley Bank Deposits And Loans

The North Carolina-based First Citizens Bank & Trust Co will buy failed Silicon Valley Bank’s (SVB) loans and deposits. On Sunday, the U.S. Federal Deposit Insurance Corporation (FDIC) disclosed the agreement just over two weeks after the collapse of Silicon Valley Bank, a California lender.

SVB’s collapse earlier this month fueled fears about the stability of other lenders, prompting a sharp drop in bank shares worldwide. Given the situation, the FDIC moves all SVB deposits to a new “Silicon Valley Bridge Bank” to protect consumer funds. 

However, the FDIC has announced that all Silicon Valley Bridge depositors will automatically become First Citizens Bank & Trust Co. depositors. In addition, the announcement said that 17 former Silicon Valley Bank branches would reopen Monday as First Citizens Bank.

As of March 10, SVB Bridge had about $119 billion in deposits and $167 billion in total assets, the FDIC confirmed.

The latest deal includes acquiring $72 billion of the bank’s assets at a discount of $16.5 billion. Approximately $90 billion in securities and other assets of the California-based lenders will remain under the control of the FDIC as it tries to minimize losses for investors and depositors.

The FDIC also acquired equity rights in the stock of First Citizens Bank’s parent company, known as First Citizens Bankshares.

The announcement stated:

In addition, the FDIC received equity appreciation rights in First Citizens BancShares, Inc., Raleigh, North Carolina, common stock with a potential value of up to $500 million. 

Silicon Valley Bank Collapse

SVB was founded in 1983. The lender grew as the U.S. 16th-largest bank at the end of 2022, with about $209 billion in assets. The bank mainly served startups, technology workers, venture capitalists, and private equity firms.

Among the SVB depositors, there were many startup companies. During the pandemic, the technology was in high demand, so they deposited a lot of cash from investors. Then, Silicon Valley Bank placed these large deposits in long-term U.S. Treasury bills and government-backed mortgage securities for more yield. As interest rates rose in 2022, SVB’s bond portfolio began to decline. Here began the bank’s loss.

Many of SVB’s customers tried to withdraw their money as economic factors impacted the tech industry. The bank was engaged in long-term investments, so it did not meet customers’ demands due to a shortage of funds. Hence, Silicon Valley Bank began selling its bonds at a serious loss.

On March 6, 2023, the bank disclosed that it had to raise more than $2.25 billion to complete its balance sheet. So the customers were worried that the bank lacked capital and started withdrawing money. On March 7, SVB’s stock price fell 60%. California agencies ceased the Silicon Valley Bank on March 8 and placed it under the FDIC.

The SVB failure is the biggest bank failure in the United States since the 2008 financial crisis.