Silicon Valley Bank (SVB) and Signature Bank Collapses: Your legal and regulatory FAQs answered

The collapses of Silicon Valley Bank (SVB) and Signature Bank have created a plethora of legal issues and potential risks for the financial sector and other sectors, including many of our clients. We have created a multi-practice Task Force to advise those affected by this incident and other issues that will arise in connection with the situation. Visit our Addressing the legal implications of the Silicon Valley Bank closure Topic Center for additional resources and SVB Task Force contact information.

1. My entity had more than $250,000 on deposit at SVB or Signature Bank. What happens to those amounts?
   1. The U.S. Department of the Treasury, Federal Reserve, and FDIC, as announced in a joint statement, have acted to ensure that all depositors in SVB and Signature Bank have access to all of their deposit funds at SVB and Signature Bank (both FDIC-insured and uninsured amounts). Before this joint statement was issued, depositors were only guaranteed to have access to deposits that were FDIC-insured.
   2. All deposits in both bridge banks (even new deposits) are fully safe and backed by the full faith and credit of the U.S. government.
   3. Shareholders and certain unsecured debtholders of SVB and Signature Bank will not be protected.
   4. The Federal Reserve Board announced on Sunday, March 12, that it will make available additional funding under its systemic risk exception to eligible depository institutions to assure that banks have the ability to all depositors’ needs, and that it is prepared to address any liquidity pressures that may arise. See the Bank Term Funding Program announcement for more information.

2. Is another bank going to come and rescue SVB or Signature Bank?
   1. In the cases of both SVB and Signature Bank, the FDIC has transferred all deposits (both FDIC-insured and uninsured) and substantially all assets of the former SVB and Signature Bank to Silicon Valley Bridge Bank, N.A. or Signature Bridge Bank, N.A., the respective “bridge banks,” which are both full-service temporary national banks chartered by the U.S. Department of the Treasury’s Office of the Comptroller of the Currency, created and controlled by the FDIC. These new institutions are designed to “bridge” the gap in time between the failure of the original institutions and the time it takes the FDIC to evaluate the value of the banks’ assets and find an acquiring bank or arrange for an orderly resolution. The FDIC is operating both bridge banks to maintain banking services as previously performed before closure with minimal disruption. The FDIC has stated that all obligations of the bridge banks are backed by the FDIC and the full faith and credit of the U.S. government. There is no further need for a “rescue,” because the bridge banks are fully operational and healthy banks. The FDIC is seeking buyers for the bridge banks.

3. Do I need to file to collect deposit insurance?
   1. Depositors do not need to apply for FDIC insurance or make any filing with the FDIC to protect their deposits in SVB or Signature Bank. As stated above, all insured and uninsured deposits held at SVB and Signature Bank are safe.

4. Is Silicon Valley Bridge Bank, N.A. or Signature Bridge Bank, N.A. now my bank?
   1. Yes, for a limited period of time, until the respective bridge bank is sold (in which case, the buyer will be your new bank) or the bridge bank is otherwise terminated (in which case, you will have advance notice of a need to establish a new banking relationship).

5. How long will these amounts be insured??
   1. All deposits in the bridge banks are guaranteed, including new deposits, as long as the bridge banks are in operation. If the bridge banks are sold to other banks, full deposit insurance coverage will continue for an additional six months from such sale, and after six months, ordinary FDIC insurance limits will apply.

6. What will happen to any contracts or agreements I had with SVB or Signature Bank prior to their closures?
   1. All contracts or agreements entered into with either bank before failure have been transferred into the bridge banks. The FDIC has issued guidance stating that parties to these contracts and agreements must honor the agreements. The FDIC clarified that the bridge banks are expected to perform all of their obligations under any agreement as well, and if there were a circumstance under which the customer is able to terminate the agreement (for breach or otherwise), the customer retains that right, just as it would have had with SVB or Signature Bank. No FDIC approval would be required for termination in that circumstance. However, without a termination right under the terms of the agreement, customers are not permitted to terminate an agreement by reason only of the fact that the agreement was transferred to a bridge bank.

7. The funds to pay my company’s next payroll were on deposit at SVB or Signature Bank. Will my payroll servicer have access to these funds?
   1. The payroll servicer should be able to access all funds in deposit accounts at SVB and Signature Bank; after the joint statement referenced above, there is no concern that uninsured deposit amounts will be unavailable.

8. Will services still be available at SVB or Signature Bank, and if available, which ones?
   1. The bridge banks are fully operational banks. They are intended to supply customers uninterrupted customer service and access to their funds. All processes and account details at SVB and Signature Bank before failure remain in effect until either bridge bank notifies customers otherwise. Customers may continue to write personal checks, make deposits, and use ATM/Debit cards. Routing and account numbers will also remain the same. The FDIC has stated that customers should expect “business as usual” with these bridge banks.

9. Will SVB or Signature Bank file for Bankruptcy?
   1. No, the Bankruptcy Code does not cover banks. Instead, the FDIC receivership process provides for the orderly distribution of a bank’s assets. The bank holding companies may use the Bankruptcy Code.

10. My company had a loan with SVB or Signature Bank and a payment is due at the end of the month – how will I be able to avoid default?
    1. The FAQs published by the FDIC state that loan customers should continue to make their payments as usual according to the terms of their written loan agreements. All escrow services previously performed related to your loan will continue. Until a borrower is notified of any change, it should continue to make payments as usual.

11. I’m a borrower of SVB or Signature Bank. Can I draw on my committed line of credit or other committed credit facility?
    1. Yes. Currently, all lines of credit have been transferred to the bridge banks, which the FDIC has stated are operating “business as usual.” The bridge banks have authority to issue new credit as well.

12. What will happen to scheduled automatic payments and bill pay services from SVB or Signature Bank accounts?
    1. Automatic payments services from SVB or Signature Bank accounts will continue as usual, with routing numbers and account numbers remaining the same until you are notified in writing by either bridge bank.

13. What will happen to direct deposit services at SVB or Signature Bank?
    1. All direct deposits or any payment you receive electronically will continue as usual, including for social security, payroll, veterans’ benefits, disability, or unemployment.

14. My company has incoming wire transfers scheduled to go into my deposit account at SVB or Signature Bank– should I cancel them?
    1. There is no need to cancel these wires. They will arrive and be handled in the ordinary course, and all deposits in both bridge banks are safe.

If you have questions about Silicon Valley Bank UK, please see Silicon Valley Bank UK Limited FAQs.

Helpful Resources:

• Silicon Valley Bridge Bank Transfer Agreement
• FDIC: FIL-10-2023 3/14/2023 Financial Institution Letter: Financial Institutions are Required to Meet Contractual Obligations with Bridge Banks
• FDIC: PR-19-2023 3/13/2023 Press Release: FDIC Acts to Protect All Depositors of the former Silicon Valley Bank, Santa Clara, California
• FDIC: PR-18-2023 3/12/2023 Press Release: FDIC Establishes Signature Bridge Bank, N.A., as Successor to Signature Bank, New York, NY