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Published on Wednesday, March 22, 2023

Silicon Valley Bank and Signature Bank Collapse: NEACH Response and Update

On March 10, Silicon Valley Bank, a prominent lender in the world of technology startups, failed. The failure resulted from multiple factors, including its investments losing value and its depositors withdrawing large sums of money. The Federal Reserve had previously issued six citations to the bank, pointing out vulnerabilities that required attention. The Federal Deposit Insurance Corporation and the Federal Reserve acted swiftly to address the situation.

 

Spooked by the collapse of Silicon Valley Bank, Signature Bank, a New York-based institution with ties to the real estate and legal industries, customers withdrew more than $10 billion in deposits, according to CNBC: “Regulators announced late Sunday that Signature was also being taken over to protect its depositors and the stability of the U.S. financial system.”

 

 As reported by CNN, “A week after Signature Bank failed, the Federal Deposit Insurance Company said it has sold most of its deposits to Flagstar Bank, a New York Community Bank subsidiary." CNN pointed out, “Not included in the transaction is about $60 billion in other assets, which will remain in the FDIC’s receivership. It also doesn’t include $4 billion in deposits from Signature’s digital bank business.”

 

NEACH Response

NEACH supports the move the federal government took to safeguard Silicon Valley Bank (SVB) and Signature Bank deposits, enabling people banking there to access their money. As reported by CNBC, “The Federal Reserve stepped in with a separate facility that will provide loans up to one year for institutions affected by the bank failures . . . The Fed facility will offer loans of up to one year to banks, saving associations, credit unions and other institutions. Those taking advantage of the facility will be asked to pledge high-quality collateral such as Treasury’s, agency debt and mortgage-backed securities.”

 

NEACH also commends the Federal Reserve Board for appointing Vice Chair for Supervision Michael S. Barr to lead a review of the supervision and regulation of Silicon Valley Bank and Signature Bank. 

 

Further, these swift actions underscore the U.S. banking system's safety, stability, and security. These and other actions the government took to ensure the banking system remains sound helps are in everybody’s best interest. 

 

In addition, NEACH would like to encourage its member financial institutions to continue their risk mitigation efforts and to thank them for their ongoing contributions to their members, customers, and communities. 

 

Silicon Valley Bank Update

 

To level-set, here's what we know so far about this developing story:

 

  • The FDIC acted swiftly to protect all depositors, transferring all deposits, both insured and uninsured, and all assets of the former Silicon Valley Bank to a newly created, full-service FDIC-operating “bridge bank” in an action designed to protect all depositors of Silicon Valley Bank, according to a company news release

 

  • On March 13, depositors were given full access to their money when Silicon Valley Bridge Bank, N.A., the bridge bank, opened, including online banking. Depositors and borrowers automatically became customers of Silicon Valley Bridge Bank, N.A. They were given full access to their funds through ATMs, debit cards, checks, and customer services, in the same manner as before. Silicon Valley Bank's official checks were honored and continued to clear.

 

  • Also on March 13, the Federal Reserve Board announced that Vice Chair for Supervision Michael S. Barr is leading a review of the supervision and regulation of Silicon Valley Bank in light of its failure. The review will be publicly released by May 1. "The events surrounding Silicon Valley Bank demand a thorough, transparent, and swift review by the Federal Reserve," said Chair Jerome H. Powell.

 

  • The U.S. House Financial Services Committee will begin investigating two high-profile banking failures. Rep. Patrick McHenry, who chairs the committee, and Rep. Maxine Waters, its ranking member, announced Friday (March 17) that they’ll hold a hearing looking at the collapse of Silicon Valley Bank (SVB) and the subsequent failure of Signature Bank due, says NPR, “to its high amount of uninsured deposits as well as its exposure to crypto and other tech-focused lending. “

 

  • On March 21, NerdWallet reported, “A subsidiary of New York Community Bancorp has agreed to buy all the loans and deposits of Signature Bank. The institution failed two days after Silicon Valley Bank’s collapse, and global financial markets continue to respond to the biggest bank failure since the Great Recession.”

 

  • “On March 20, Flagstar Bank officially assumed control of Signature Bank’s 40 former branches, the Federal Deposit Insurance Corp. announced Sunday,” according to NerdWallet. “Signature Bank’s customers will automatically have their deposits transferred to Flagstar Bank. Those deposits are still insured by the FDIC. (If your bank is FDIC-insured, your deposits are insured by the federal government, up to $250,000 per institution and per ownership category.”

 

NEACH will continue to update its members as new details emerge. In the meantime, as the ramifications of this failure continue to unfold, NEACH encourages its members to reassure their customers about the safety and soundness of the banking system and their protections at federally insured institutions. If there are any resources we can provide to support you in those efforts, please reach out and let us know.

 

We invite you to contact us directly at 781-321-1011 with questions or concerns.

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Author: Meagan Norlund

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