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The 2023 Banking Crisis: Guidance for Private Investors Seeking to Acquire or Invest in Assets of Failed Insured Depository Institutions

This GT Alert provides a general overview for investors interested in acquiring or investing in the assets of failed depository institutions and requirements and restrictions applicable to private investors’ participation in the FDIC’s bid process.

Following the failure of both Silicon Valley Bank, Santa Clara, CA (SVB) and Signature Bank, New York, NY (SigBank), the Federal Deposit Insurance Corporation (FDIC) was appointed as receiver of each institution pursuant to the agency’s authority under Section 11(e) of the Federal Deposit Insurance Act. The FDIC transferred all deposits and substantially all assets of SigBank to a newly created, full-service FDIC-operated ‘bridge bank’ – Signature Bridge Bank, N.A. (Sig Bridge). The FDIC operated Sig Bridge until March 19, 2023, when Flagstar Bank, N.A., a wholly owned subsidiary of New York Community Bancorp, Inc., entered into a Purchase and Assumption (P&A) transaction to purchase approximately $38 billion in assets, including $25 billion in cash, assume liabilities of approximately $36 billion, including $34 billion in deposits, acquire certain commercial and industrial loan portfolios of Sig Bridge, acquire its wealth management and broker-dealer businesses, and assume all of Sig Bridge’s branches. SigBridge’s commercial real estate portfolio and certain other loans remain unsold.

The FDIC also transferred all deposits and substantially all assets of SVB to a newly created, full-service FDIC-operated ‘bridge bank’ – Silicon Valley Bridge Bank, N.A. (SVB Bridge). The FDIC operated SVB Bridge until March 27, 2023, when First-Citizens Bank & Trust Company, the banking subsidiary of First Citizens BancShares, Inc., announced it had entered into a P&A transaction to purchase SVB Bridge’s assets of $110 billion, deposits of $56 billion, loans of $72 billion and assume the 17 former branches of SVB Bridge as part of the deal. The FDIC as receiver and First-Citizens Bank & Trust Company also entered into a loss share coverage agreement pursuant to which the parties share in the losses and potential recoveries on certain loans covered by the agreement. The loss share transaction is projected to maximize recoveries on the assets by keeping them in the private sector. Approximately $90 billion in securities and other assets from SVB Bridge remain in the FDIC’s receivership for disposal.

To promote efficient and expedient liquidation at the least cost to the Deposit Insurance Fund, the FDIC, by statute, has special resolution powers to use in the liquidation of the assets from failed banks. The most common and preferred method for resolving a failing bank is a P&A transaction, whereby a healthy institution agrees to purchase some or all of the assets of the receiver bank, as was the case with Sig Bridge.

In the absence of a P&A transaction, or if the assuming institution does not acquire all the assets, as in the case of both Sig Bridge and SVB Bridge, the FDIC, as a receiver, assumes ownership of the failed bank’s remaining assets and must manage, market, and sell them. The FDIC conducts sales of a variety of failed bank assets, including loans, securities, owned real estate, furniture, fixtures, and equipment. Qualifications, requirements, and processes vary depending on type of assets.

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