Silicon Valley Bank and Signature Bank deposit accounts. The FDIC transferred all deposits and assets to such institutions – also known as "bridge banks," which are institutions chartered by the Office of the Comptroller of the Currency and essentially mechanisms through which the closed institutions can fulfill their lending obligations. Under normal circumstances, a purchasing institution is found to acquire a failed bank in order to continue operations. However, the FDIC was unable to find a willing purchaser for Silicon Valley Bank pursuant to the usual timeline given the large size of the institution and the rapid expedition of the bank’s collapse due to such a high frequency of withdrawals. First Citizens Bank recently stepped in to acquire Silicon Valley Bank in a government-supported transaction that transferred $72 billion dollars in assets and $56 billion of Silicon Valley Bank’s deposits.Assumption of Contractual Obligations with Silicon Valley Bank and Signature BankUnder 12 U.S.C. § 1821, the FDIC holds broad power to "manage the affairs of insolvent banks as receiver orconservator." Specifically, § 1821(e) grants the FDIC the power to enforce contracts entered into by the failed depository institution for which the FDIC has become a receiver. The FDIC released a statement on March 14, 2023, addressing the status of all financial institutions with contractual obligations to Silicon Valley Bank or Signature Bank. All such contracts have been assumed by the bridge banks. This means that all parties and counterparties to agreements entered into with the original institutions before their failureremain legally required to fulfill their obligations. Vendors and counterparties engaged in contractual relationships with either bank should be cognizant that 12 U.S.C. § 1821(e)(13) enables the FDIC to enforce such contracts, as well as transfer them under 12 U.S.C. § 1821(d)(2). The bridge institutions have corresponding authority to commence legal actions against counterpartie

star and First-Citizens should be serviced as usual. As we have advised from the inception of this bank failure, none of the credit facilities administered by the FDIC as receiver, whether through a bridge bank or not, can be counted on for making future draws. Despite the intent of Congress that the bridge banks “should - continue to honor commitments” made by the failed banks to “creditworthy customers,” there is no requirement that the bridge banks must continue to do so. Borrowers who are relying on these loan agreements to make future draws should be replacing them or at least putting contingency plans in place. The longer it takes for the FDIC to sell off failed bank assets the worse the outcomes tend to be.The FDIC as receiver can put and call assets to the bridge banks, and can “repudiate” within a reasonable time period any contract that was entered into before its appointment as receiver pursuant to the Financial Institutions Reform, Recovery, and Enforcement Act (“FIRREA”), 12 U.S.C. § 1821(e). Under § 1821(e)(3), when the FDIC as receiver repudiates a contractual obligation, it relieves the FDIC from performing any unperformed obligations of the contract and only entitles the other party to make an administrative claim against the FDIC as receiver under FIRREA for actual direct compensatory damages against the assets of the failed financial institution. If the FDIC as receiver exercises its repudiation authority, it would render the borrower a limited-rights creditor of the failed bank, who would have to file an administrative proof of claim with the FDIC as receiver and may get paid nothing or next to nothing—years from now.Will the FDIC advance under existing loans that remain with the FDIC?Advances by the FDIC as receiver are only available when, in the FDIC’s judgment, the advance improves the value or marketability of the assets. The FDIC offers this guidance:Line of Credit and Construction and Development LoansWhen the FDIC is appointed receiver, it immediately begin

n between) has been a matter of years, rather than months. We remain optimistic that the FDIC will provide further clarifying information in the near future.* * *The sudden closure of SVB and the appointment of the FDIC as receiver is a rapidly developing situation, and this FAQ may be updated periodically as new information becomes available or the mechanics of the receivership position are clarified.These FAQs are for general informational purposes only and do not and are not intended to constitute legal advice. Readers should contact their attorney to obtain advice with respect to any particular legal matter. No reader should act or refrain from acting on the basis of information on this site without first seeking legal advice from counsel in the relevant jurisdiction. Only your individual attorney can provide assurances that the information contained herein — and your interpretation of it — is applicable or appropriate to your particular situation.Endnotes 12 U.S.C. § 1811 et seq. 12 U.S.C. § 1821(d)(4)(B)(i). 12 U.S.C. § 1821(d)(10)(B). 12 U.S.C. § 1821(d)(11). 12 U.S.C. § 1821(d)(3)(B)(i). See Federal Reserve Bank of Chicago, “U.S. Corporate and Bank Insolvency Regimes: An Economic Comparison and Evaluation,” at page 17.[View source.]

previously were limited to $250,000 per depositor).All depositors of SVB and Signature will be made whole. Shareholders and certain unsecured debtholders will not be protected. The FDIC announcement emphasized that no losses will be borne by taxpayers, and any losses to the Deposit Insurance Fund will be recovered by a special assessment on banks, as required by law. Specifically, the SRE system provides that each insured depository institution that receives protection from the FDIC will be assessed a surcharge to cover the deposit amounts that were not actually insured as of the time SVB/Signature failed.On March 13, 2023, the FDIC announced that it was transferring all deposits, both insured and uninsured, and substantially all assets of SVB to a newly created, full-service FDIC-operated “bridge bank” (the “SVB Bridge Bank”), and named Tim Mayopoulos as CEO of SVB Bridge Bank. The receiver for Silicon Valley Bank has also transferred all Qualified Financial Contracts (as defined in 12 USC 1821(e)) of the failed bank to SVB Bridge Bank.Also on March 13, 2023, the Bank of England in consultation with the PRA, HM Treasury and the Financial Conduct Authority announced that HSBC UK Bank Plc had acquired SVBUK. SVBUK continues to be a PRA authorized bank, all services function as normal and customers can contact SVBUK through their usual channels.Appointment of the FDIC as ReceiverThe Federal Deposit Insurance Act (the “FDIA”) governs the receivership of financial institutions whose deposits are insured by the FDIC. The laws of most states include provisions for state administered insolvencies of state chartered banks, but in practice the FDIC almost always is appointed receiver. Under applicable federal law, the FDIC may be appointed receiver for member insured state banks by appropriate state authorities.The FDIC is appointed receiver in order to liquidate or wind up the affairs of a failed insured depository institution.Upon the appointment of the FDIC as receiver of a failed i

are expressly not designed with the protection of investors and unsecured creditors in mind.The FDIC will establish a process for submitting proofs of claims in the receivership proceedings sometime in the near future, and potential claimants should consult with counsel to preserve their positions within the receivership proceedings as they progress. FDIC receiverships typically are administered in ways that are similar to state court receiverships or bankruptcy cases, but they are not governed by state law or the bankruptcy code.[1] FDIC press releases may be accessed here. [2] To read more about the history behind the passage of the Federal Deposit Insurance Corporation Improvement Act of 1991, refer to this 2013 article by Noelle Richards of the Federal Reserve Bank of Philadelphia. [3] A copy of the term sheet for the program is available here. [4] For a more complete discussion of the FDIC strategies, refer to Chapter 6 of Crisis and Response: An FDIC History, 2008-2013. [5] See 12 USC §§ 1821(d)(13)(E) and 1823(d)(3)(D). [6] See 12 USC § 1821(e). [7] See Crisis and Response, linked in footnote 4, above. [8] See A Borrower’s Guide to an FDIC Insured Bank Failure. [9] See 12 USC § 1821(e)(4)(B).

[2] Such affirmative defenses include comparative negligence, lack of proximate cause, intervening or superseding cause, proportionate liability, no injury, failure to mitigate, apportionment, speculative damages, and unclean hands.[3] See, e.g., 12 U.S.C. § 1821(d)(2)(J)(ii) (FDIC must determine the best interests of the depository institution and its depositors); 12 U.S.C. § 1821(p)(1)(B) (FDIC is prohibited from selling bank assets to officers or directors of a failed bank); FDIC v. Raffa, 935 F. Supp. 119, 123 (D. Conn. 1995) (holding that the FDIC's "regulatory oversight of banks is intended only to protect depositors, the insurance fund and the public."); FDIC v. Mijalis, 15 F.3d 1314, 1324 (5th Cir. 1994) ("conduct of the FDIC ‘should not be subjected to judicial second guessing,' . . . because the FDIC owes no duty to failed financial institutions or to their former directors and officers") (citation omitted).

u of cash upon execution of a lease agreement as security for the performance by a tenant of all obligations on the part of such tenant thereunder. A landlord will typically have the right to draw on the letter of credit upon the occurrence of events enumerated under the lease (e.g., such tenant’s default, bankruptcy or holdover). While leases almost always include the obligation of the tenant to furnish a replacement letter of credit following the issuing bank’s failure to renew the letter of credit upon expiration or willful termination, landlords sometime overlook the sensibility of including provisions in the lease requiring replacements in connection with the financial stability of the issuing bank. The failure to cover a closure or credit rating downgrade of the issuing bank can prove costly. Importantly, once the issuing bank is closed by the state banking regulator and placed into conservatorship or receivership by the FDIC, the conservator or receiver has the authority, under 12 U.S.C. § 1821(e), to repudiate any contracts which have obligations it determines to be burdensome.In relevant part, 12 U.S.C. § 1821(e)(1) provides:In addition to any other rights a conservator or receiver may have, the conservator or receiver for any insured depository institution may disaffirm or repudiate any contract or lease —(A) to which such institution is a party;(B) the performance of which the conservator or receiver, in the conservator’s or receiver’s discretion, determines to be burdensome; and(C) the disaffirmance or repudiation of which the conservator or receiver determines, in the conservator’s or receiver’s discretion, will promote the orderly administration of the institution’s affairs.Issuing Bank Standards and Requiring a Replacement Letter of CreditWhen accepting a letter of credit as the security deposit, landlords would be well advised to pay particular attention to craft a security deposit provision that broadly covers the financial health of the issuing bank. As discussed abo

Here's What We Know:On March 12, 2023, Signature Bank, New York, NY (SB) was closed by the New York State Department of Financial Services, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. “[T]he FDIC transferred all the deposits and substantially all of the assets of Signature Bank to Signature Bridge Bank, N.A. (SBB), a full-service bank” operated by the FDIC pending the bank’s sale or liquidation. The FDIC “also transferred all Qualified Financial Contracts (as defined in 12 USC 1821(e)) of the failed bank to the bridge bank.”On March 20, 2023, the FDIC entered into a Purchase and Assumption Agreement (PAA) for substantially all deposits and certain loan portfolios of SBB by Flagstar Bank, National Association, Hicksville, New York (Flagstar), a wholly owned subsidiary of New York Community Bancorp, Inc., Westbury, New York (NYCBI).Since then, the 40 former branches of SBB have been operating as Flagstar. Notices to depositors about their accounts should start issuing shortly from Flagstar.What Flagstar Bought:$38.4 billion of SB assets, including loans of $12.9 billion, pursuant to a PAA. Purchase and assumption is a transaction in which a healthy bank purchases and assumes liabilities, including all deposits, and is the preferred vehicle for the FDIC for failing banks. Here, Flagstar assumed liabilities for: All deposits except digital banking;Liabilities for acceptance or commercial letter of credit, to the extent secured by Acquired Assets;Liabilities for “stan

deposits and the obligations of the two failed banks. Neither bank is in receivership. These new banks have stepped into the shoes of the former institutions and are regulated by the Office of the Comptroller of the Currency, which means, among other things, that all depositors and borrowers automatically became customers. Total balances in all accounts, according to the FDIC, “will be available for transactions daily” to the extent they were available at predecessor banks. In addition, all vendors and counterparties to contracts with SVP and SB are legally obligated to satisfy contract terms. It is important to recognize, however, bridge banks are temporary institutions designed to “bridge” the gap between the failure of a bank and the time when the FDIC can stabilize the institution and implement an orderly resolution. As temporary institutions, the life of a bridge bank is limited by statute to a maximum of two years (subject to extension for three additional one-year periods) (see 12 U.S.C. § 1821).Highlights of Bridge Bank Implications:The FDIC has issued a number of releases and letters since the collapse of the financial institutions in an attempt to stabilize the banks and the market. The FDIC provided the following guidance:All obligations and loan positions, including as lender, issuing bank, administrative agent, and any other function that was formerly performed by SVB and SB, have now been assumed by the applicable bridge bank.All commitments to advance under existing credit agreements will be honored in accordance with their terms.All counterparties may transact business with, settle transactions, and conduct business with the banks.All vendors and counterparties to contracts are expected to make payments and fulfill contractual obligations.All obligations of vendors and counterparties to contracts may be enforced by the FDIC as receiver (12 U.S.C. § 1821(e)(13)).All contracts may be transferred by the FDIC as receiver notwithstanding any apparent limits on transfer i

Even if the bank goes to great lengths to ensure that privileged information shared with its regulator is withheld from a parallel investigation, other agencies can still obtain the information. Under another federal statute, 12 U.S.C. § 1821(t), bank regulators’ sharing of privileged information received from regulated institutions with other government agencies is explicitly contemplated. The backstop provided by this statute is, again, a protection ensuring that the transfer between agencies does not waive attached privileges.