Is my money safe? It's a question that we haven't heard very much in over twelve years.

Most businesses and people have no experience with troubled banks and potential bank failures. That is because bank failures are exceptionally rare. According to the Federal Deposit Insurance Corporation (FDIC), there are more than 4,700 FDIC-insured banks in the United States. Before Friday, there were only eight bank failures in the last five years.

To put this in perspective: There has now been a bank failure and another bank liquidation in just the last week.

Because of the FDIC and our bank regulatory system, a bank failure is quite different from other business failures. The most important difference is that there is an existing federal backstop guaranteeing deposits up to $250,000. In addition, if a bank is no longer able to meet its obligations (a liquidity event), the FDIC will be appointed receiver of the failed bank and will try to sell the bank to a purchaser that will assume the bank's obligations. If a buyer cannot be identified quickly enough, the FDIC will create and operate its own bridge bank (or may appoint a conservator) that will continue business while an acquirer or multiple acquirers are identified.[1] In both cases, the transition is usually seamless, and the only difference for customers is that the name of their bank has changed.

DWT's lawyers have more than 40 combined years of experience working as senior bank regulators, including at the FDIC in Washington, DC. We have helped many banks through tough times, and we have played a key role in drafting rules and guidance in anticipation of this moment.

As events unfold, don't panic, but be prepared. We offer the following information and non-exhaustive list of considerations to assist you in navigating the near-term consequences following the closure of Silicon Valley Bank (SVB) on March 10, 2023, by the California Department of Financial Protection & Innovation.

• The FDIC has been appointed Receiver and has taken over SVB's operations: Note that all SVB obligations have been assumed by the Deposit Insurance National Bank of Santa Clara (DINB). See FDIC: PR-16-2023 3/10/2023. From a legal standpoint, SVB has ceased to exist, and all of its operations, assets and liabilities now belong to DINB. For FAQs and related information on the receivership process as of the morning of March 11, 2023, see the FDIC's website (as excerpted below).
• If you want to verify your insurance status by entering each of your account numbers, go to the FDIC's claims portal.
• Deposit accounts insured and uninsured amounts: FDIC has stated that access to deposits up to the insurance limit ($250,000) will be restored by Monday morning (3/13/2023). Depositors with accounts exceeding $250,000 will receive receivership certificates for the excess, and the FDIC will pay advance dividends to uninsured depositors on the uninsured amounts within the next week.
  • Per the FDIC release: "The FDIC will pay uninsured depositors an advance dividend within the next week. Uninsured depositors will receive a receivership certificate for the remaining amount of their uninsured funds. As the FDIC sells the assets of [SVB], future dividend may be made to uninsured depositors." An advance dividend payment gives depositors access to a portion of their uninsured funds. Depositors do not have to file a claim for their advance dividend.
    • Point of comparison: in IndyMac, the FDIC declared a 50 percent advance dividend for uninsured deposits.
    • The advance dividend means that accountholders will have access to a portion of their uninsured deposits on or before Friday (03.17.23).
  • As the FDIC has confirmed, depositors do not need to file a claim for deposit insurance. The books and records of the bank are used for determining who is protected by deposit insurance. If, however, your deposit accounts exceed $250,000, contact the FDIC at 1-866-799-0959 to schedule a telephone appointment with an FDIC Claims Agent (which may require you to complete certain forms or provide documentation).
    • If it is determined that you have some uninsured funds, the FDIC will mail you a Notice of Insurance Determination Letter (NIDL). The NIDL provides a Receiver's Certificate Number which entitles you to share proportionately in any funds recovered through the sale of the assets of Silicon Valley Bank.
  • Assuming the FDIC is able to identify an acquiror for DINB, we expect the acquiror (or multiple acquirors) will purchase DINB and assume all deposit liabilities (insured and uninsured). As the FDIC sells the assets of Silicon Valley Bank, future dividends may be distributed to uninsured depositors.
• Banking services: Starting Monday, March 13, 2023, you may use your personal checks and ATM/Debit cards for a limited period. You may also make deposits. According to the FDIC, online banking and bill pay services will resume on Monday, March 13, 2023. Any payments scheduled must clear your account before the account is closed or the DINB ends, whichever occurs first.
  • In its FAQs, the FDIC advises customers to act quickly to replace these services:
    • Automatic payment and bill pay: Any automatic payments from your account (except from a held account) will continue until you close your account or DINB ends, whichever comes first. Move your automatic payments to a new bank as soon as possible.
    • Direct deposit and Social Security: All direct deposits, including Social Security deposits, will continue until the DINB end date; you should, however, move any automatic deposits or withdrawals as soon as possible.
• Operating expense shortfalls: Delays in having access restored to uninsured deposit amounts can lead to operating expense shortfalls. Consider searching for and securing alternative lines of credit until the FDIC completes its asset sales through DINB.
  • Payroll: In addition to being unable to access your account at SVB, some payroll processors may be unable to make payroll.
  • Some states assess statutory penalties for late checks (e.g., California). Consider your payroll obligations, state by state, to prioritize payments to avoid statutory penalties while waiting for DINB to restore access to uninsured deposit amounts. Consult with employment attorneys if furloughs or other actions may be necessary.
• Beware of scams; communicate through the FDIC Claims Portal: The FDIC will not send unsolicited emails to claim/unlock/suspend your account. If you wish to correspond directly with the FDIC, use the FDIC's secure web portal.
• Pooled or omnibus accounts held at SVB. If you manage or operate any financial product or program that involves pooled deposits (e.g., BaaS programs, payment applications, FBO accounts, etc.) at SVB, start preparing records that indicate the individual user balances as of 9:00 AM PST on March 10, 2023.
  • The FDIC may need to ascertain evidence of deposit insurance on a pass-through basis. Depending on the terms of your agreement with SVB, you may be the party required to maintain the ledgers evidencing each individual beneficial user and the applicable balances.
• Payment processing / APIs: Like all of SVB's obligations, SVB's processing obligations will be assumed by DINB, which should ensure continuity.
  • If you have a merchant acquiring relationship (or similar payment processing relationship) with SVB, direct all networks that settle funds through SVB to direct funds to a settlement account at another institution.
  • Currently, indications are that SVB's APIs are still functioning, but any payments (such as ACH entries) triggered by those APIs are being held as pending. For example, if a company has a payment-processing relationship with SVB (DINB) that triggers ACH debits from an unrelated bank for settlement to SVB (DINB), the end users will see that a transaction has been initiated, but on the back end, the company will see the payments as pending. It is uncertain how those ACH entries will be processed once SVB (DINB) resumes operations on Monday. You should monitor the status of any such payments.
  • If you have a processing agreement with SVB and a payment network (e.g., Visa, Discover), contact the payment network to discuss processing issues, and start looking for a replacement for SVB.
    • DINB will assume all of SVB's processing obligations; when it arranges for the purchase of SVB's assets, however, the agreements may be assumed by a purchasing bank that you do not want to do business with. In addition, this is probably a default under many of SVB's agreements, so many of those obligations may not survive.
• Loans and credit facilities issued by SVB: DINB assumed all of SVB's rights pending their future disposition. Continue making all loan payments to DINB as usual. Here is a resource describing how the FDIC processes loans. It is the FDIC's intention to sell all loans, and it will be up to the new owner to determine the best method to collect the loan. If your loan is sold, you will be notified in advance (and you have the right to refinance your loan with another institution).
  • With respect to any pending or undrawn credit amounts, the FDIC has the right to repudiate or cancel any undrawn credit lines. If you rely on any SVB open-end or revolving credit (or syndicated loans), prioritize arranging alternative financing for these facilities. However, note that the FDIC may not cancel credit lines because it will want to make the bank more appealing to purchasers and minimize market instability.
• SVB-backed Letters of Credit: DINB will assume the obligation to pay any letters of credit you may be relying on. However, it is advisable to begin looking for alternative guarantors.
  • Although DINB will assume these obligations, your counterparty may insist on you are securing a letter of credit with a new bank (e.g., many leases require a new letter of credit if the guarantor goes into receivership).
• SAM Accounts at SVB. We understand that SVB "SAM" or asset management accounts include a mix of deposit accounts and other products. You (with counsel) should review the terms of your account agreements to determine the nature of the assets in your SAM accounts.
  • Deposit accounts will be subject to the limits outlined above.
  • Other assets in your SAM accounts may be products at other institutions in your name. These are not SVB's / DINB's assets. Review the terms of your account agreements to determine how to get access to these products.
• If you have developed any IP, platforms, or other enterprises with SVB: Begin assessing these products to determine your rights if DINB tries to sell SVB's interest therein.
• If SVB is invested in you: If SVB holds any of your equity or debt, review the terms of the ownership documents to analyze your rights if DINB attempts to sell their ownership interests. This analysis may change depending on if another SVB-related entity (i.e., the holding company or an affiliate) holds the interests. Other entities in the SVB structure (e.g., the holding company), which may hold the assets, are likely to be subject to a bankruptcy.
• Considerations for broker-dealers: Broker-dealers are required to maintain a minimum level of net capital, consisting of highly liquid assets, at all times pursuant to the SEC's net capital rule (Rule 15c3-1). Generally, a broker-dealer that maintains the firm's cash balances in a bank account at a U.S. bank is permitted to treat those balances as "allowable" assets toward satisfying the broker-dealers minimum net capital requirements. Following SVB's receivership, we understand that the likely approach the SEC will take will be that broker-dealers with cash balances remaining in their SVB bank accounts will be permitted to treat those balances as allowable assets when computing net capital up to $250,000; amounts over $250,000 will need to be treated as non-allowable assets.

  Note that broker-dealers with money remaining in their SVB accounts or that transferred money out of their SVB accounts also may be subject additional regulatory requirements, including SEC and FINRA regulatory notification requirements (e.g., under SEC Rule 15c3-1(e), SEC Rule 17a-11, and FINRA Rule 4120).

• If you are owed money for a service or product. You may be eligible to file a claim against Silicon Valley Bank if you have not been paid for services rendered prior to March 10, 2023. All creditors with claims must submit their claims to the Receiver online or by mail.
  • To facilitate the receipt of correspondence related to the Receiver's administrative claims process, any party/claimant who would normally send mail to an FDIC facility related to the Receivership is encouraged to send electronic communication inquiries through email (nondepclaimsdal@fdic.gov) or the FDIC Information and Support Center.
  • Any party/claimant who normally would submit a Receivership claim submission by mail is encouraged to submit the claim through the Non-Deposit FDIC Claims Portal or through email (nondepclaimsdal@fdic.gov).
  • Online: FDIC Claims Portal
  • Email: NonDepClaimsDal@FDIC.gov
  • Mail: FDIC as Receiver for Silicon Valley Bank
    Attention: Claims Agent
    600 North Pearl Street
    Suite 700
    Dallas, TX 75201

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