HomeFinanceFirst Citizens Bank has agreed to acquire the deposits and loans of...

First Citizens Bank has agreed to acquire the deposits and loans of Silicon Valley Bank

As per the statement by the FDIC, on Monday, the 17 previously owned branches of Silicon Valley Bridge Bank will commence operations under the name of First-Citizens Bank & Trust Company.

The U.S. Federal Deposit Insurance Corporation announced on Monday that First Citizens Bank & Trust Co will purchase the deposits and loans of Silicon Valley Bank, following just over two weeks after the most substantial banking collapse in the United States since Lehman Brothers.

The agreement involves the procurement of nearly $72 billion worth of SVB assets at a reduced price of $16.5 billion. However, roughly $90 billion in securities and other assets will remain under the custody of the FDIC for further disposition.

“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,” the FDIC announced in a statement.

This event occurred following the transfer of all SVB deposits and assets into a new “bridge bank” earlier this month by the regulator to safeguard the depositors of the bankrupted lender.

“The 17 former branches of Silicon Valley Bridge Bank, National Association, will open as First–Citizens Bank & Trust Company on Monday, March 27, 2023,” the FDIC statement said Monday.

“Customers of Silicon Valley Bridge Bank, National Association, should continue to use their current branch until they receive notice from First–Citizens Bank & Trust Company that systems conversions have been completed to allow full–service banking at all of its other branch locations.”

First Citizens Bank and the FDIC have also made a “loss-share transaction,” wherein the FDIC will bear a portion of the losses on a particular set of assets, for the commercial loans acquired from the SVB bridge bank.

“The loss–share transaction is projected to maximize recoveries on the assets by keeping them in the private sector. The transaction is also expected to minimize disruptions for loan customers,” the FDIC said.

The regulator further stated that the estimated expense of SVB’s failure to its Deposit Insurance Fund would be approximately $20 billion, with the precise cost to be determined after the receivership has ended.

SVB, a well-known name in the technology and venture capital industry, was shut down by regulators and its deposits were taken over on March 10th, marking the largest bank failure in the United States since the global financial crisis.

SVB’s collapse was a result of significant withdrawals from client accounts and a sharp decline in the value of assets, including U.S. Treasury bills and government-backed mortgage securities, which were once considered safe, due to the Federal Reserve’s aggressive interest rate increases.

As a result of the withdrawals and the drop in the value of assets, the bank was unable to raise the $2.25 billion it needed to meet clients’ withdrawal demands and support new lending, leading to its collapse.

The FDIC confirmed that as of March 10, the SVB bridge bank had approximately $167 billion in total assets and around $119 billion in total deposits.

SVB’s collapse had a ripple effect across the global banking industry and was considered as one of the factors that led to the eventual downfall and emergency bailout of Swiss banking giant Credit Suisse by its domestic rival UBS.

According to many analysts, the market volatility that followed SVB’s collapse and Credit Suisse’s troubles was not justified since these failures were due to specific problems within each bank, and were not indicative of broader systemic issues in the financial industry. These problems caused a loss of investor confidence.

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