In a recent development, First Citizens Bank announced its intention of purchasing the failed Silicon Valley Bank (SVB), as confirmed by a statement from the FDIC. Under the deal, all 17 branches of the Silicon Valley Bank would reopen their doors under the banner of First Citizens Bank and Trust Company on Monday. Similarly, all depositors of SVB would automatically be granted the status of depositors in the First Citizens Bank.
As per details, the buyout plan included the purchase of approximately $72 billion from Silicon Valley Bridge Bank at a discount of almost $16.5 billion. Furthermore, as long as securities and other assets are concerned, a significant percentage of them, worth $90 billion, would remain in the disposition of the FDIC. The FDIC gained the rights for equity appreciation in the common stock of the First Citizens Bank. The potential value of the common stock is set at the $500 million mark.
Today, we entered into an agreement with First-Citizens Bank & Trust Company to purchase and assume all deposits and loans of Silicon Valley Bridge Bank, N.A.https://t.co/vjDsnQxhrr pic.twitter.com/MI5lXN5y6r
— FDIC (@FDICgov) March 27, 2023
The statement further stated,
“Prudent risk management approach will continue to protect customers and stockholders through all economic cycles and market conditions.”
First Citizens Bank Had Plans of Buying SVB Soon After its Collapse
The situation turned dire for the Silicon Valley Bank on March 10 as the result of a bank run that was initiated by rumors of a liquidity crisis. Soon after disaster struck, the FDIC was appointed as the receiver of the bank and even attempted to auction the newly collapsed bank.
The auction had two additional processes; one of them revolved around the traditional deposits of the bank, and the other was regarding SVB’s private bank which was housed within the retail operations.
It was reported that the First Citizens Bank had been planning on purchasing the SVB soon after its collapse. Moreover, the bank submitted a bid to purchase the SVB on March 21.
The SVB Deal – What’s Next for US Banks and Crypto?
It is true that the sudden collapse of SVB inevitably resulted in one of the worst banking crises since the global crisis in 2008. The crypto market suffered a major setback due to the whole scenario. Considering how many investors and consumers have lost confidence in the banking system, the recent deal might reinstate some faith and consumer confidence.
The Chief Executive of the First Citizens Bank, Frank Holding Junior said,
“We are committed to building on and preserving the strong relationships that legacy SVB’s global fund banking business has with private equity and venture capital firms.”
The First Citizens Bank has also signed an agreement with the FDIC to equally bear the burden of losses to provide additional protection. Currently, the FDIC believes that the failure of SVB might cost the federal deposit insurance fund a sum of a whopping $20 billion.
However, it is believed that the move might really just be necessary to boost financial stability. Finance experts have welcomed the development and they believe it will change things for good in the banking system. The move might also help Bitcoin and other cryptocurrencies to ride the green candle again.