First Citizens BancShares, a family-run bank in North Carolina that traces its history to the late 1800s, will acquire Silicon Valley Bank, the California lender founded in the 1980s at the center of the technology industry, whose rapid growth and sudden collapse this month sent shock waves across the financial sector.
The Federal Deposit Insurance Corp. seized control of Silicon Valley Bank on March 10, after a run on deposits left it insolvent, making it the country's largest bank failure since the 2008 financial crisis. The FDIC has since been looking for a buyer for the bank, which was the country's 16th largest when it collapsed.
The deal for the bank, renamed Silicon Valley Bridge Bank after the FDIC seized it, included the purchase of about $72 billion in loans, at a discount of $16.5 billion, and the transfer of all the bank's deposits, worth $56 billion. Roughly $90 billion in Silicon Valley Bank's securities and other assets were not included in the sale and remained in the FDIC's control.
The Federal Deposit Insurance Corp. and other regulators had already taken extraordinary steps to head off a wider banking crisis by guaranteeing that depositors in Silicon Valley Bank and failed Signature Bank would be able to access all of their money.
While more than half of Silicon Valley's assets will remain in U.S. receivership, the First Citizens deal announced late Sunday seemed to achieve what regulators have sought: a shoring up of trust in U.S. regional banks.
Shares of midsize banks like Keycorp, Zions and First Horizon rose Monday. Shares of First Republic Bank, which received a $30 billion rescue package from 11 of the biggest banks in the country as it teetered in the wake of the Silicon Valley collapse, jumped 11.8%.
Customers of Silicon Valley Bank will automatically become customers of First Citizens, which is based in Raleigh, N.C. The 17 former branches of Silicon Valley Bank will open as First Citizens branches on Monday, the FDIC said.
Silicon Valley Bank, based in Santa Clara, Calif., collapsed in a bank run after customers rushed to withdraw money because of fears about the bank's solvency. It was the second-largest bank collapse in U.S. history after the 2008 failure of Washington Mutual. Two days later, New York's Signature Bank was seized by regulators in the third-largest bank failure in the U.S.
In both cases, the government agreed to cover deposits, even those that exceeded the federally insured limit of $250,000, so depositors were able to access their money.
New York Community Bank agreed to buy a significant chunk of Signature Bank in a $2.7 billion deal a week ago, but the search for a buyer for Silicon Valley Bank took longer.
The sale of Silicon Valley Bank involves the sale of all deposits and loans of of the bank to First-Citizens Bank and Trust Co., the FDIC said.
The acquisition gives the FDIC shares in First Citizens worth $500 million. Both the FDIC and First Citizens will share in losses and the potential recovery on loans included in a loss-share agreement, the FDIC said. The FDIC estimates Silicon Valley Bank's failure will cost its industry-funded Deposit Insurance Fund about $20 billion. At the end of 2022, the fund balance was about $128 billion.
First Citizens Bank was founded in 1898 and says it has more than $100 billion in total assets, with more than 500 branches in 21 states as well as a nationwide bank. It reported net profit of $243 million in the last quarter. It is one of the top 20 U.S. banks and says it is the largest family-controlled bank in the country.
COMMITTEE HEARINGS
The Senate Banking Committee today will hold the first formal congressional hearing on the failures of Silicon Valley Bank and New York-based Signature Bank and the shortcomings of supervision and regulation, by the Fed and other agencies, that preceded them.
The committee will also likely question Michael Barr, the Federal Reserve's vice chair for supervision, and other officials about the government's response, including its emergency decision to insure all the deposits at both banks.
In prepared testimony released Monday, Barr pledged that the Fed and other agencies will take whatever steps they deem necessary to protect depositors and the banking system. Regulators "are prepared to use all of our tools for any size institution, as needed, to keep the system safe and sound," Barr said.
The Senate Banking Committee -- and the House Financial Services Committee on Wednesday -- are also scheduled to question Martin J. Gruenberg, chair of the Federal Deposit Insurance Corp., and Nellie Liang, undersecretary for domestic finance at the Treasury Department.
Absent from the list: former Silicon Valley Bank Chief Executive Gregory Becker and former Signature Bank CEO Joseph DePaolo, who have been asked to testify this week or at a later date.
The witnesses face a grilling over the handling of Silicon Valley Bank's collapse, which sent shock waves through the financial system as regulators seized the lender and took emergency steps to prevent a broader collapse.
Congress' response has primarily broken along party lines. Republicans have pointed to a lack of supervision, and blasted President Joe Biden for what they call a bailout of a "woke" bank. Democrats have largely blamed a regulatory rollback during Donald Trump's presidency that loosened oversight requirements for midsize banks like Silicon Valley Bank, though some face criticism for joining Republicans in voting for it.
The Fed has come under harsh criticism by groups advocating tighter financial regulation for failing to adequately supervise Silicon Valley Bank and prevent its collapse, and Barr will likely face tough questioning by members of both parties.
In his prepared testimony, Barr blamed the management of Silicon Valley Bank for its failure. But he also said he would ensure that the Fed "fully accounts for any supervisory or regulatory failings" in a previously announced review of the bank's collapse.
Barr said officials at the Federal Reserve Bank of San Francisco, which directly supervised Silicon Valley Bank, sent multiple warnings to the bank's management about the risks it was taking, including its substantial holdings of Treasurys and other bonds that were steadily losing value as interest rates rose. Ultimately, when large depositors sough to withdraw more than $40 billion in a single day, the bank couldn't pay out the funds. On March 10, the bank was seized by the Federal Deposit Insurance Corp.
As recently as mid-February 2023, Barr says in his prepared testimony, Fed staffers told the central bank's board of governors that rising rates were threatening the finances of some banks and highlighted, in particular, the risk-taking at Silicon Valley Bank.
"But, as it turned out," Barr says, "the full extent of the bank's vulnerability was not apparent until the unexpected bank run on March 9."
Information for this article was contributed by Lauren Hirsch of The New York Times, Christopher Rugaber of The Associated Press and Mackenzie Hawkins and Austin Weinstein of Bloomberg News (WPNS).
A First Citizens Bank sign is seen in Durham, North Carolina, on Monday March 27, 2023. North Carolina-based First Citizens will buy Silicon Valley Bank, the tech industry-focused financial institution that collapsed earlier this month. (AP Photo/Jonathan Drew)