The unexpected collapse into Receivership of Silicon Valley Bank (SVB) is having a significant, disruptive affect in many areas of commerce. It creates any number of actual and potential problems and concerns for depositors and others who banked there. How are deposit account holders’ funds likely be treated by the Receivership Administration, given that each depositor’s or borrower’s relationship with the now-closed SVB is unique?

Let’s look more closely at what we know right now, keeping in mind that each individual or entity who or which banked with SVB should contact their own legal professional, financial advisor, broker or accounting specialist.

The March 10, 2023, possession of SVB by the California Department of Financial Protection & Innovation (DFPI) led to the commencement of a Receivership for the institution being administered by the Federal Deposit Insurance Corporation (FDIC). The Receivership entity created by the FDIC, the Deposit Insurance National Bank of Santa Clara, will be administering the liquidation and distribution of SVB’s assets. On March 12, 2023, the FDIC announced that it would be conducting an auction for the sale of SVB’s assets. How long the sales process would take and under what procedures the auction would be conducted were not disclosed by the FDIC.

What we do know is that federal regulators announced late in the day on March 12 that the federal government would step in using emergency powers to insure customer access to deposit amounts as of Monday, March 13. This is welcome news for account holders at Silicon Valley Bank.

While what follows should not be considered business, financial or legal advice, here are some pragmatic steps one might take to mitigate some concerns:

First, one should review the FDIC’s published resources. These include:

1. The initial FDIC press release.
2. A dedicated FDIC resources page complete with a FAQ section.
3. An explanatory FDIC page on insured deposits.
4. An FDIC online claims portal.
5. Questions can also be emailed to the FDIC at depositorservices@fdic.gov.
6. Also worth reviewing is the initial DFPI press release.

Second, as an overview, the FDIC has indicated that in the immediate short term, SVB clients can expect:

1. Full depositor access to fully federally insured account fund amounts totaling $250,000 or less will be made available on Monday, March 13, 2023.
2. At some point during the week of March 13, 2023, depositors with account balances above the federally insured limit of $250,000 will be provided a preliminary, interim distribution amount for sums above $250,000 in deposit accounts at SVB prior to the takeover. No announcement has yet been made by the FDIC of the percentage amount which will be made available in this secondary distribution.
3. Also during the week of March 13, 2023, depositors with account balances above federally insured limits will receive a “Receivership Certificate” for deposit amounts above $250,000 not repaid to account holders or made available to depositors through the payment of the above described secondary distribution.

Third, agreements, contracts and account documents should be examined to determine the type, nature and scope of your rights as a matter of the contract(s) you have had with SVB. Your rights and entitlements to future distributions under the liquidation proceedings may vary depending on the nature of the account relationship. 

Fourth, you will need to plan and re-budget effectively in discussions with your financial and legal teams considering (or assuming) that funds above the $250,000 amount may not become available for use for quite some time. At this point, no one knows, or can possibly predict with certainty, how much of the money beyond the $250,000 that you had on deposit with SVB will be returned to you, or when it might become available. Your discussions and planning sessions should consider financial options for your personal or business enterprise over the immediate (this week and next), short term (30-60 days) and longer-term periods.

Consider how to handle or cover:

1. Payroll and benefits (health insurance or pension plan contributions) timing;
2. Critical vendor payments and other financial obligations (loan payments, leases, license fees or royalty payments); and,
3. Longer term research, development or marketing expenses for which the previously planned source of funding consisted of amounts on deposit with SVB in excess of the federally insured limit of $250,000. 

Finally, the closing of a bank impacts the business and personal lives of more than those possessing a deposit relationship with the failed institution. Line of Credit facilities, construction loan financing, joint venture participation funding and other loan and investment related products will be significantly disrupted until the FDIC establishes systems for honoring SVB’s obligations under lender-related transactional agreements.

Once again, a careful study and review of your documents, contracts and agreements with SVB will help you navigate the uncertain waters created by the FDIC’s takeover. A disruption in lender-borrower relationships should be analyzed and considered if SVB was your lender.   

In summary, much is not yet known about how the SVB liquidation will proceed. Likely, in the very near future, the FDIC will announce requirements or systems for a potential claims procedure for depositors and how other banking relationships, like loan agreements and future funding obligations will be treated as the Receivership progresses. The FDIC’s March 12, 2023, announcement of an auction for the sale of SVB’s assets will hopefully expedite the process of gaining depositors access to their funds, but until more is known about the purchase and sale process and timing, careful planning and budgeting and looking at alternatives will be required for any business or individual impacted by the closure of SVB.

The disruption of SVB’s collapse requires planning and the discussion of alternatives with your management team and professional advisors to help weather the storm.