International Tax Panorama

North Carolina-based lender First Citizens Bank and Trust Company has agreed to buy the Silicon Valley Bank (SVB) which was seized by the US authorities. 

The purchase by unit First–Citizens Bank & Trust Company includes the purchase of about $72 billion of Silicon Valley Bank’s assets at a discount of $16.5 billion, the FDIC said.

First Citizens BancShares entered into a loss-share transaction for all deposits and loans of the SVB, a statement from the US Federal Deposit Insurance Corporation (FDIC) read. 

As per this agreement, the FDIC and First Citizens BancShares will share losses and potential recoveries on the loans covered. This transaction aims to maximise recoveries on assets by keeping them in the private sector. It is also expected to minimise disruptions for loan customers. 

Some $90 billion in securities remains with the FDIC for sale, it said. First Citizens said it wants to build on SVB’s venture capital business and it will accelerate an expansion in California.

The FDIC also received equity appreciation rights in First Citizens BancShares common stock with a potential value of up to $500 million.

The 17 former branches of Silicon Valley Bridge Bank, National Association, will open as First Citizens Bank & Trust Company on Monday, March 27, 2023.

Depositors of the embattled SVB will automatically become depositors of First Citizens BancShares. The FDIC statement underlined that all the deposits assumed by the First Citizens BancShares will be insured by the FDIC. 

North Carolina-based First Citizens said in a statement it did not buy other assets or debts of SVB Financial Group, the former parent company of Silicon Valley Bank.

At present, the estimated cost of Silicon Valley Bank’s collapse to its deposit insurance fund (DIF) is around $20 billion. The SVB had around $167 billion in total assets and about $119 billion in total deposits

Silicon Valley Bank collapse

On March 10, the bank failed after a bank run, marking the second-largest bank failure in United States history. Silicon Valley Bank collapsed after a stunning 48 hours in which a bank run and a capital crisis led to the second-largest failure of a financial institution in US history. It’s decline stems partly from the Federal Reserve’s aggressive interest rate hikes over the past year.

After years of interest rates hovering around zero, the central bank last spring began a series of historic rate hikes to make borrowing for businesses and individuals more expensive — a way to cool the economy and bring inflation in line. Silicon Valley Bank is the first FDIC-insured institution to fail this year. The last FDIC-insured institution to close was Almena State Bank, Almena, Kansas, on October 23, 2020.

What will be the larger impact of the sale?

A buyer for large chunks of Silicon Valley Bank’s deposits and loans helped cast an uneasy calm over fragile markets on Monday, which have been roiled by worries of a credit crunch and systemic bank stress.

The deal has given markets some respite as it was the first weekend in several weeks that did not bring news of fresh banking collapses, rescue deals or emergency help from authorities to shore up confidence.