First Citizens Bank to Buy Silicon Valley Bank Deposits and Loans

The headquarters of Silicon Valley Bank. Credit: Coolcaesar, CC BY-SA 4.0/Wikipedia

First Citizens Bank & Trust Co will buy Silicon Valley Bank’s deposits and loans, the U.S. Federal Deposit Insurance Corporation said Monday, potentially calming markets after the biggest U.S. banking collapse since Lehman Brothers.

The deal includes purchasing approximately $72 billion of SVB assets at a discount of $16.5 billion. Around $90 billion in securities and other assets will remain “in receivership for disposition by the FDIC.”

“In addition, the FDIC received equity appreciation rights in First Citizens BancShares, Inc., Raleigh, North Carolina, a common stock with a potential value of up to $500 million,” the FDIC said in the release.

The regulator transferred all SVB deposits and assets into a new “bridge bank” earlier this month in an effort to protect depositors of the failed lender.

“The 17 former branches of Silicon Valley Bridge Bank, National Association, will open as First–Citizens Bank & Trust Company on Monday, March 27, 2023,” the statement said Monday.

“Customers of Silicon Valley Bridge Bank, National Association, should continue to use their current branch until they receive notice from First–Citizens Bank & Trust Company that systems conversions have been completed to allow full–service banking at all of its other branch locations.”

First Citizens has around $109 billion in assets and total deposits of $89.4 billion.

Earlier in March the US government said that people and businesses who have money deposited with failed US bank Silicon Valley Bank (SVB) will be able to access all their cash.

A statement from the US Treasury, the Federal Reserve and Federal Deposit Insurance Corporation (FDIC) said depositors would be fully protected. The statement said taxpayers would not bear any losses from the move.

SVB was shut down by regulators who seized its assets. It was the largest failure of a US bank since the financial crisis in 2008.

Fed raises interest rates despite banking crisis

Despite the banking crisis, the US central bank has raised its key interest rate by 0.25 percentage points last week.

Wednesday’s rate rise is the ninth in a row by the Fed. It lifts its key interest rate to 4.75 percent-5 percent, up from near zero a year ago, the highest level since 2007.

Federal Reserve Chairman Jerome Powell said the Fed remained focused on its inflation fight. The year-of-year over rate of inflation has slowed to 6 percent, but it’s still above the Fed’s preferred rate of 2 percent.

The sharp increase in interest rates since last year has led to strains in the banking system. Two US banks – Silicon Valley Bank and Signature Bank – collapsed this month, buckling in part due to problems caused by higher interest rates.

There are concerns about the value of bonds held by banks as rising interest rates may make those bonds less valuable.

Banks tend to hold large portfolios of bonds and as a result, are sitting on significant potential losses. Falls in the value of bonds held by banks are not necessarily a problem unless they are forced to sell them.