As you have no doubt heard, for the first time since 2020 there was a bank failure in the U.S. on Friday March 10, 2023. Then there was another two days later, on Sunday March 12. The two banks involved are Silicon Valley Bank(SVB) of Santa Clara, California, which failed Friday, and Signature Bank of New York City, which failed Sunday. At the end of 2022, SVB had approximately $209 billion in total assets and about $175.4 billion in total deposits. SVB was the first bank to fail since October 2020. Meanwhile, at the end of 2022, Signature Bank had assets of $110.4 billion and deposits of $88.6 billion.
In both cases, the FDIC was appointed as receiver, creating temporary “bridge” banks to hold all the deposits, uninsured and insured, and substantially all the assets. As explained by the FDIC in a press release, a bridge bank is a chartered national bank that operates under an FDIC-appointed board to assume the deposits and other liabilities and purchase certain assets of a failed bank. The bridge bank structure is designed to bridge the gap between the time of failure and the time when the FDIC can implement an orderly resolution.
On Sunday March 12 a joint statement was issued by the Treasury, Fed, and FDIC announcing the two bank failures, indicating that taxpayers will not bear the losses associated with the resolution of either bank, and reiterating that the Fed will make additional funds available to eligible institutions to prevent bank runs that contributed to closures of SVB and Signature Bank. All depositors will be fully protected at both institutions, but shareholders and certain unsecured debtholders will not be protected.
While our member banks are generally not going to be subject to the specific risk factors that brought down SVB and Signature Bank, such as large deposit base concentrations in technology, bad investment decisions, and poor communication, there could be more scrutiny in the area of liquidity management going forward. These failures seemingly happened overnight without warning, but downfalls like these are years in the making, and now is a good time to look into asset and liability management, liquidity management, and funds management.
Compliance Alliance has tools to help in these areas:
C/A Asset & Liability Management Toolkit: https://compliancealliance.com/find-a-tool/by-toolkit/asset-liability-management/
Assets Liability and Liquidity Management Policy: https://compliancealliance.com/find-a-tool/tool/assets-liability-liquidity-management-policy/C/A
Liquidity Risk Management Audit Worksheet: https://compliancealliance.com/find-a-tool/tool/liquidity-risk-management-audit-worksheet
FDIC Liquidity and Funds Management: https://www.fdic.gov/resources/bankers/capital-markets/liquidity-and-funds-management/
For further information, the Federal Reserve has put out FAQs for both SVB and Signature Bank. These could also be helpful in anticipating how other bank failures would be handled. As always, if you have any questions about what’s going on, any of the published guidance or about what your institution can do proactively to avoid any future concerns in these areas, feel free to reach out to us on the hotline in addition to using the Compliance Alliance resources linked above.