First Citizen BancShares Inc decided to purchase Silicon Valley Banks which went through bankruptcy this month. The US-based First Citizen has signed a deal to purchase Silicon Valley Bank (SVB), which was taken over by regulators after the investors started withdrawing money.
After the acquisition of SVB by the First Citizen, the customers of SVB will instantly become the customers of First Citizen. The First Citizen, which has its headquarters in Raleigh, North Carolina, opens the branches of SVB in several locations as their branches.
On Monday, March 27, 2023, the 17 former locations of Silicon Valley Bank will reopen as First Citizen Bank. The Clients of SVB should continue to use their current branch account in SVB until they hear from First Citizen Bank authorities.
The failure of Silicon Valley Bank startled the banking sector, prompting the FDIC and other regulators to take action to safeguard depositors and prevent further financial unrest.
The SVB went out of business on March 10 as the lenders of the bank hurried to withdraw their money due to concerns about the bank’s stability. The bank suffered a significant loss on the sale of its securities when interest rates rose, which alarmed investors and depositors who immediately started withdrawing their funds.
The bank collapse was the second-largest downfall faced in American history in more than a decade.
According to a statement from the Federal Deposit Insurance Corp.(FDIC), the North Carolina-based bank entered into an acquisition contract for all SVB’s deposits and debts. The contract was set for the purchase of approximately $72 billion in SVB assets at a $16.5 billion discount.
The FDIC will continue to have receivership over around $90 billion in securities and other assets. It will also have $500 million as equity appreciation rights in First Citizens.
According to the statement, the failure of SVB is expected to have cost the Deposit Insurance Fund some $20 billion. However, the precise amount will only become clear after the acquisition is over.
The US Federal Deposit Insurance Corp (FDIC) and other authorities responded to the failure of Silicon Valley Bank on March 10 by taking action to safeguard depositors and prevent wider financial instability.
Authorities were rushing to close a transaction for the bank to cover the uninsured savings of its startup customers. An earlier auction attempt to cover these savings failed due to a lack of interest.
After considering the interests of several buyers, the FDIC extended the tender process. The FDIC enabled parties to submit separate proposals for the Silicon Valley Private Bank subsidiary and Silicon Valley Bridge Bank, the firm established by the FDIC when SVB entered receivership.
After SVB’s failure, US authorities took extraordinary steps to restore faith in the financial system, providing a new bank guarantee that Federal reserve officials claimed was large enough to safeguard all accounts in the country.
After the Santa Clara, California-based corporation disclosed a $1.8 billion loss on the sale of securities and reported a slowdown in funding at the venture capital-backed firms it supports. Eventually, shares of SVB had fallen sharply.
As businesses like Founders Fund, Coatue Management, Union Square Ventures, and Founder Collective started encouraging their portfolio companies to move money out of SVB, the bank was compelled to abandon its attempt to raise cash.
With the third-largest bank failure in American history on March 12, regulators also seized New York-based Signature bank.
Depositors at SVB and Signature Bank were able to retrieve their money in both instances because the government agreed to cover deposits, including those that exceeded the federally insured maximum of $250,000.
Investors were alarmed that the mid-sized First Republic Bank might fail because it has a comparable customer to Silicon Valley Bank and appears to be experiencing a similar situation. This prompted a $30 million rescue package to be announced by 11 of the nation’s largest banks.
According to reports, the First Citizen previously put in a bid for SVB just after its bankruptcy. Its interest in a purchase has confused some observers, who have questioned whether First Citizens has the resources to handle the second-largest bank collapse supported by the FDIC in American history.
The First Citizen bank reportedly has more than $100 billion in total assets and has more than 21 branches across the nation. In the last quarter, First Citizen reported a total profit of almost $243 million.
The SVB’s failure has led people to lose confidence in several financial institutions in the US. people started to withdraw their money from banks like SVB and deposited it into larger institutions. People deposit their money in withdrawn banks which are seen as too big so that the authorities can’t bail them out in a crisis.
The acquisition of SVB by First Citizen might give people the confidence to deposit their money back in such banks. It might also help the US financial sector to prevent a crisis.