raise $2 billion in capital to shore up its balance sheet. Then on Thursday, March 9, shares of SVB fell 60 percent and it experienced a run by depositors. By that evening, $42 billion in deposits had left the bank with an additional $100 billion staged to be withdrawn the next day. To put this in perspective, nearly 30 percent of deposits left the bank in a matter of hours, with another 50 percent set to leave. Of great relevance, over 90 percent of SVB’s deposits were uninsured. When SVB failed on Friday, March 10, the FDIC initially established a Deposit Insurance National Bank (DINB), which is a self-liquidating vehicle under FDIC control. We announced that insured depositors would have full access to their funds on the Monday after failure and that uninsured depositors would have access to a substantial portion of their funds shortly thereafter through the payment of an advance dividend. A portion of the uninsured deposits would be held back in the receivership and would experience losses depending on the losses to the Deposit Insurance Fund. The prospect that uninsured depositors at SVB would experience losses alarmed uninsured depositors at several other regional banks, and depositors began to withdraw funds. Signature Bank of New York in particular experienced heavy withdrawals. A contagion effect became apparent and there was clear evidence that the failure of a regional bank in which uninsured depositors faced losses could cause systemic disruption. On Sunday, March 12, just two days after the failure of SVB, the New York State bank regulator closed Signature Bank and appointed the FDIC as receiver. Like SVB, Signature had experienced a run on deposits and was ultimately unable to meet its obligations, and also like SVB, over 90 percent of its deposits were uninsured. Faced with growing contagion in the system, the boards of the FDIC and Federal Reserve voted to recommend that the Secretary of the Treasury, in consultation with the President, make a systemic risk determination under the Federal Deposit Insurance Act with regard to the resolutions of SVB and Signature Bank. The systemic risk determination enabled the FDIC to extend deposit insurance protection to all of the depositors of SVB and Signature Bank, including uninsured depositors. The FDIC as receiver chartered two bridge
banks to carry this out and we then started the process of finding potential buyers for the bridge banks. This process allowed for the possible sale of the entire bank to an acquirer or major pieces of it to separate buyers. A regional bank with a similar business model, New York Community Bank’s subsidiary, Flagstar Bank, purchased Signature a week after it was placed in receivership. Another regional bank, First Citizens Bank of North Carolina, purchased SVB after two weeks. As this audience is well aware, the events of March were not solely contained within the U.S. SVB’s resolution was complicated by its international activity as part of a larger corporate group providing financial services to clients in a number of other jurisdictions. SVB, the U.S. insured depository institution, had a UK bank subsidiary, and loan production branches in Canada and Germany. The Bank of England used its resolution powers to transfer the ownership of that entity over the same weekend to HSBC UK. Canada’s Office of the Superintendent of Financial Institutions sought the appointment of a branch liquidator with whom we worked closely. In Germany’s case, we coordinated closely with BaFin, the Federal Financial Supervisory Authority, in a way that I think represents an excellent example of cross-border coordination. Allowing the branch to continue operations while under the FDIC’s control and granting recognition of actions taken by the FDIC as receiver to be effective under German law enabled a smoother resolution process. Although the FDIC was authorized to proceed under the systemic risk exception in these cases, it is important to recognize that both institutions were allowed to fail. Shareholders lost their investment. Unsecured creditors took losses. The boards and the most senior executives were removed. The FDIC is conducting investigations, as it is legally required to do, to hold directors, officers, and executives accountable for losses and misconduct. Less than two months later, on May 1, 2023, First Republic Bank of California, was closed by the state regulator, and again the FDIC was appointed receiver. At year-end 2022, First Republic Bank held $213 billion dollars in assets. First Republic had a nearly 70 percent reliance on uninsured deposits and was clearly impacted by the contagion effect of the previous two failures.
2023 ANNUAL REPORT 21
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