Deal to buy Silicon Valley Bank calms bank fears, for now
NEW YORK — First Citizens Bank is buying much of Silicon Valley Bank, the tech-focused financial institution whose failure this month set off a chain reaction that helped rattle faith in banks around the world.
The Federal Deposit Insurance Corp. and other regulators had already taken extraordinary steps to head off a wider crisis by guaranteeing all depositors in SVB and another failed institution, Signature Bank, could get their money, even if they had more than the $250,000 limit insured by the FDIC.
The First Citizens deal announced late Sunday, at least initially, seemed to achieve what regulators have sought: a shoring up of trust in other regional banks across the country.
Stock prices strengthened for First Republic, PacWest Bancorp. and other banks that investors have spotlighted as most at risk for a sudden exodus of nervous customers, similar to the run that caused Silicon Valley Bank’s failure.
The sale underscores that Silicon Valley Bank’s assets do have value and helps to rebuild some faith in the banking sector, investors and experts said. But they also said it doesn’t by itself provide an immediate all-clear for other banks following the second- and third-largest U.S. failures in history. Restoring trust and figuring out exactly what pain other banks may ultimately feel will take more time.
“The financial system is like a boat,” said Aaron Klein, a senior fellow at the Brookings Institution and a former official at the Treasury Department. “SVB’s collapse has rocked the boat, but the ship is righting itself.”
“The news today is good, it’s a positive step forward to digging out of the hole of the collapse that SVB put us in,” he said. “But losses are substantial: $20 billion is real money, even in Washington.”
That $20 billion is referring to the loss the FDIC says its deposit insurance fund could take because of Silicon Valley Bank’s failure. As part of the deal with First Citizens, the FDIC agreed to share in potential losses or gains coming out of some of the loans purchased from Silicon Valley Bank.
The $20 billion wouldn’t come from taxpayers. It would instead come from an FDIC fund that banks pay into. But banks could ultimately charge slightly more in fees or pay less in interest to their customers to help make up for it, Klein said.
“The question is who should bear those losses?” he said. “Should seniors get a few less interest points on their bank deposits, or should” big depositors with more than $250,000 at Silicon Valley Bank be willing to lose some of their cash?
First Citizens agreed to buy about $72 billion of Silicon Valley Bank’s assets at a discount of $16.5 billion. About $90 billion in assets remain in FDIC’s receivership. The FDIC also received rights related to First Citizen BancShares stock that could be worth up to $500 million.
Since the banking crisis began in mid-March, officials from the Treasury Department to the Federal Reserve have said they still see the system as sound and secure.