On March 10, 2023, Silicon Valley Bank, a tech-focused financial institution, collapsed, causing a chain reaction that tested faith in the global banking sector. The Federal Deposit Insurance Corp. and other regulators took extraordinary steps to head off a wider banking crisis by guaranteeing depositors in Silicon Valley Bank and failed Signature Bank would be able to access all of their money.
However, First Citizens, a U.S. regional bank, announced late Sunday that it would acquire much of Silicon Valley Bank, at least initially shoring up trust in U.S. regional banks. In this article, we will explore the troubled Silicon Valley Bank acquisition by First Citizens and its impact on the global banking sector.
The Collapse of Silicon Valley Bank
Silicon Valley Bank, based in Santa Clara, California, was the second-largest bank collapse in U.S. history after the 2008 failure of Washington Mutual. It collapsed on March 10, 2023, in a bank run after customers rushed to withdraw money due to fears over the bank’s solvency. The collapse caused a chain reaction that tested faith in the global banking sector.
Two days later, New York’s Signature Bank was seized by regulators in the third-largest bank failure in the U.S. In both cases, the government agreed to cover deposits, even those that exceeded the federally insured limit of $250,000, so depositors were able to access their money.
First Citizens to Acquire Much of Silicon Valley Bank
First Citizens, a U.S. regional bank headquartered in Raleigh, North Carolina, announced late Sunday that it would acquire much of Silicon Valley Bank. The acquisition gives the FDIC shares in First Citizens worth $500 million. Both the FDIC and First Citizens will share in losses and the potential recovery on loans included in a loss-share agreement, the FDIC said.
Customers of SVB will automatically become customers of First Citizens, and the 17 former branches of SVB will open as First Citizens branches Monday, the FDIC said. The acquisition initially seemed to achieve what regulators have sought: a shoring up of trust in U.S. regional banks.
Impact on the Global Banking Sector
Anxiety over contagion in the banking sector quickly spread to Europe this month and regulators there brokered a takeover by UBS of troubled Swiss bank Credit Suisse. Shares of Deutsche Bank tumbled 8.5% Friday for similar reasons, rising interest rates, but stock in the German bank bounced back 3.6% Monday.
However, at the opening bell Monday, shares of midsized banks like Keycorp, Zions, and First Horizon rose 8%. First Republic Bank, which received a $30 billion rescue package from 11 of the biggest banks in the country as it teetered in the wake of the Silicon Valley collapse, jumped 23%.
European shares opened higher Monday, with German lender Commerzbank AG up 2.4% and BNP Paribas up 1.2%. The sale of Silicon Valley Bank involves the sale of all deposits and loans of SVB to First-Citizens Bank and Trust Co., the FDIC said.
The FDIC will retain about $90 billion of Silicon Valley Bank’s $167 billion in total assets, as of March 10, while First Citizens will acquire $72 billion at a discount of $16.5 billion, the FDIC said. It said it estimates Silicon Valley Bank’s failure will cost its industry-funded Deposit Insurance Fund about $20 billion.
In conclusion, First Citizens’ acquisition of much of Silicon Valley Bank initially seemed to achieve what regulators have sought: a shoring up of trust in U.S. regional banks. While the collapse of Silicon Valley Bank and Signature Bank caused anxiety over contagion in the banking sector, the acquisition by First Citizens is a positive step in stabilizing the industry. It remains to be seen what further impact the collapse of Silicon Valley Bank will have on the global banking sector, but the acquisition by First Citizens is a step in the right direction.