Last Updated: Sunday, March 12, 2023, 5 p.m. PDT
On Friday, March 10, 2023, Silicon Valley Bank (SVB) was closed by the California Department of Financial Protection & Innovation, The Federal Deposit Insurance Corporation (FDIC) was then appointed Receiver and the FDIC created the Deposit Insurance National Bank of Santa Clara (DINB).
On Sunday, March 12, 2023, the Treasury, Federal Reserve, and FDIC released a joint statement confirming depositors will have access to all of their money at SVB starting Monday, March 13, 2023. The Treasury, Federal Reserve, and FDIC also announced a similar systemic risk exception for Signature Bank, New York, New York, which was closed today by its state chartering authority. All depositors of that institution will be made whole. The Federal Reserve Board on Sunday also announced it will make available additional funding to eligible depository institutions to help assure banks have the ability to meet the needs of all their depositors.
Below are important questions that Fenwick’s clients may consider this upcoming week in light of SVB’s closure and today’s joint statement by the Treasury, Federal Reserve, and FDIC.
Am I prepared to access my accounts through DINB and do I have replacement banking services available?
Starting Monday, March 13, 2023, bank customers will be able to use banking services, including deposits, automatic payments and withdrawals, until the end of the life of DINB. Online banking services are not currently available; however, these services are expected to resume on Monday. Please remember to notify customers, payment processers, payroll servicers and other parties that make transfers to and out of the company’s accounts to provide them with new bank account information as soon as possible.
It has not yet been disclosed by the FDIC how depositors will access the new account(s) at DINB; however, we expect that bank customers will gain access to accounts by using their existing online banking login information (as if they were logging into their SVB accounts prior to the bank closing). If the FDIC elects to grant access through a different method, we expect that the FDIC will notify bank customers using the information on file with SVB.
Separately, we understand that certain payroll servicers and third parties that make ACH withdrawals from company accounts had indicated that they will not process an ACH withdrawal from an SVB account number, and that the company will need to provide them with alternate banking information. Please check with your company’s service providers to determine if this is still the case after today’s announcement.
We encourage you to verify all automatic payments from your account to confirm they have been made when scheduled. You should move your automatic payments to a new bank as soon as possible.
If not already in place, you will need to establish a new banking relationship and open new accounts at a different financial institution, and migrate any DINB activity to that new account. The FDIC is currently determining the end dates for banking services and the DINB.
Will I need to file a claim form with the FDIC?
Depositors do not need to file a claim form with the FDIC.
If your company is a general creditor of SVB (e.g., your company provided a service or product to SVB, including leasing office space, furniture, or equipment), and has not been paid, you may have a claim against SVB, which may be submitted online or by mail. Potential creditor claimants are recommended to call 1-866-799-0959 to speak with an FDIC Claims Agent.
If you are a company with a loan from Silicon Valley Bank, what should the company do with its loan?
The company should continue to make loan payments to the same address or wire instructions as prior to the SVB closure (payments should continue to be made to SVB).
It is the FDIC’s intention to sell all loans, and it will be up to the new owner to determine the best method to collect the loan. If your company’s loan is sold, the company will be notified by mail in advance of the sale. The company will have the right to refinance the loan with another institution.
If the company has a credit facility with SVB and SVB is the sole lender, you should not expect to be able to draw down for the foreseeable future, if at all. We would recommend starting to look for a replacement loan facility. In cases where SVB is part of a lending syndicate, the company may have the right to borrow the pro rata share of available commitments (excluding any SVB commitment) from other lenders in the syndicate. Please contact your Fenwick team to discuss the details of your loan.
Many SVB loan agreements include provisions restricting borrowers from opening accounts at other financial institutions. However, your company will need to establish a new banking relationship and open new accounts at a different financial institution notwithstanding these covenants.
If you are a company with a letter of credit from Silicon Valley Bank, how will you provide alternate credit support?
If SVB issued a letter of credit on behalf of your company, the beneficiary of the letter of credit may demand that the company provide a replacement letter of credit from another financial institution (and, depending on the terms of your lease, you may need to proactively arrange one). Consider contacting your landlord and a new banking partner to discuss options to post a replacement letter of credit.
Fenwick is closely monitoring this rapidly changing situation as it evolves and partnering with our clients to address the potential impact on their businesses. If you have questions or would like to discuss further, please contact the authors of this alert or the Fenwick attorney with whom you normally work.