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Tag: Silicon Valley Bank

  • India’s financial system insulated from developments in US, Switzerland: Das

    India’s financial system insulated from developments in US, Switzerland: Das

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    India’s financial system remains “completely” insulated from the recent developments in the US and Switzerland, said RBI Governor Shaktikanta Das.

    The recent developments in the US include the failure of Silicon Valley Bank and Signature Bank due to asset-liability mismatches and their closure. Financial stress at Switzerland’s second largest bank, Credit Suisse, led Swiss authorities to merge it with larger rival UBS.

    At a press conference in Washington on Thursday, Das said at the global level, the recent developments in the banking system in the US and in Switzerland, have once again brought into focus the importance of financial stability and banking sector stability, said a PTI report.

    The Governor was in Washington for the annual spring meeting of the International Monetary Fund and the World Bank along with Finance Minister Nirmala Sitharaman.

    ‘Very healthy’

    “So far as India is concerned, the Indian banking system remains completely insulated from the developments that have taken place in the US or in Switzerland. Our banking system is resilient, stable and healthy,” Das said.

    “The parameters related to banking, whether it is capital adequacy, or it is the percentage of stressed assets or it is the liquidity coverage ratio of individual banks both at individual level as well as at the systemic level or issues like provision coverage ratio, aspects like net interest margin of banks, profitability of banks, whichever parameter you take into consideration, the Indian banking system continues to be very healthy,” he said.

    Das said as far as the Reserve Bank of India (RBI) is concerned, over the last few years, “We have significantly improved and tightened our regulation and supervision of the entire banking system, including the non-banking financial companies”. The focus of supervision is on early identification of any buildup of vulnerabilities and not waiting for the crisis to build up, he said.

    In his monetary policy statement last week, Das observed that with the fight against inflation far from over, the global economy is now confronted with serious financial stability challenges from the recent banking sector developments in some advanced economies.

    “This calls for a reappraisal of the responsibilities of the regulators and the regulated entities world over and their collective role in safeguarding the stability of the financial system. While regulators need to identify potential vulnerabilities and take proactive regulatory and supervisory measures, it is incumbent upon the regulated institutions to exercise due diligence in their risk management and corporate governance practices,” he had said.

    They need to pay close attention to asset-liability mismatches and profile of their deposit base, while building up adequate capital buffers and conducting periodic stress tests, he added. 

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  • Silicon Valley Bank collapse renews calls to address disparities impacting entrepreneurs of color | CNN Business

    Silicon Valley Bank collapse renews calls to address disparities impacting entrepreneurs of color | CNN Business

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    CNN
     — 

    When customers at Silicon Valley Bank rushed to withdraw billions of dollars last month, venture capitalist Arlan Hamilton stepped in to help some of the founders of color who panicked about losing access to payroll funds.

    As a Black woman with nearly 10 years of business experience, Hamilton knew the options for those startup founders were limited.

    SVB had a reputation for servicing people from underrepresented communities like hers. Its failure has reignited concerns from industry experts about lending discrimination in the banking industry and the resulting disparities in capital for people of color.

    Hamilton, the 43-year-old founder and managing partner of Backstage Capital, said that when it comes to entrepreneurs of color, “we’re already in the smaller house. We already have the rickety door and the thinner walls. And so, when a tornado comes by, we’re going to get hit harder.”

    Established in 1983, the midsize California tech lender was America’s 16th largest bank at the end of 2022 before it collapsed on March 10. SVB provided banking services to nearly half of all venture-backed technology and life-sciences companies in the United States.

    Hamilton, industry experts and other investors told CNN the bank was committed to fostering a community of minority entrepreneurs and provided them with both social and financial capital.

    SVB regularly sponsored conferences and networking events for minority entrepreneurs, said Hamilton, and it was well known for funding the annual State of Black Venture Report spearheaded by BLK VC, a nonprofit organization that connects and empowers Black investors.

    “When other banks were saying no, SVB would say yes,” said Joynicole Martinez, a 25-year entrepreneur and chief advancement and innovation officer for Rising Tide Capital, a nonprofit organization founded in 2004 to connect entrepreneurs with investors and mentors.

    Martinez is also an official member of the Forbes Coaches Council, an invitation-only organization for business and career coaches. She said SVB was an invaluable resource for entrepreneurs of color and offered their clients discounted tech tools and research funding.

    Minority business owners have long faced challenges accessing capital due to discriminatory lending practices, experts say. Data from the Small Business Credit Survey, a collaboration of all 12 Federal Reserve banks, shows disparities on denial rates for bank and nonbank loans.

    In 2021, about 16% of Black-led companies acquired the total amount of business financing they sought from banks, compared to 35% of White-owned companies, the survey shows.

    “We know there’s historic, systemic, and just blatant racism that’s inherent in lending and banking. We have to start there and not tip-toe around it,” Martinez told CNN.

    Asya Bradley is an immigrant founder of multiple tech companies like Kinley, a financial services business aiming to help Black Americans build generational wealth. Following SVB’s collapse, Bradley said she joined a WhatsApp group of more than 1,000 immigrant business founders. Members of the group quickly mobilized to support one another, she said.

    Immigrant founders often don’t have Social Security numbers nor permanent addresses in the United States, Bradley said, and it was crucial to brainstorm different ways to find funding in a system that doesn’t recognize them.

    “The community was really special because a lot of these folks then were sharing different things that they had done to achieve success in terms of getting accounts in different places. They also were able to share different regional banks that have stood up and been like, ‘Hey, if you have accounts at SVB, we can help you guys,’” Bradley said.

    Many women, people of color and immigrants opt for community or regional banks like SVB, Bradley says, because they are often rejected from the “top four banks” — JPMorgan Chase, Bank of America, Wells Fargo and Citibank.

    In her case, Bradley said her gender might have been an issue when she could only open a business account at one of the “top four banks” when her brother co-signed for her.

    “The top four don’t want our business. The top four are rejecting us consistently. The top four do not give us the service that we deserve. And that’s why we’ve gone to community banks and regional banks such as SVB,” Bradley said.

    None of the top four banks provided a comment to CNN. The Financial Services Forum, an organization representing the eight largest financial institutions in the United States has said the banks have committed millions of dollars since 2020 to address economic and racial inequality.

    Last week, JPMorgan Chase CEO Jamie Dimon told CNN’s Poppy Harlow that his bank has 30% of its branches in lower-income neighborhoods as part of a $30 billion commitment to Black and Brown communities across the country.

    Wells Fargo specifically pointed to its 2022 Diversity, Equity, and Inclusion report, which discusses the bank’s recent initiatives to reach underserved communities.

    The bank partnered last year with the Black Economic Alliance to initiate the Black Entrepreneur Fund — a $50 million seed, startup, and early-stage capital fund for businesses founded or led by Black and African American entrepreneurs. And since May 2021, Wells Fargo has invested in 13 Minority Depository Institutions, fulfilling its $50 million pledge to support Black-owned banks.

    Black-owned banks work to close the lending gap and foster economic empowerment in these traditionally excluded communities, but their numbers have been dwindling over the years, and they have far fewer assets at their disposal than the top banks.

    OneUnited Bank, the largest Black-owned bank in the United States, manages a little over $650 million in assets. By comparison, JPMorgan Chase manages $3.7 trillion in assets.

    Because of these disparities, entrepreneurs also seek funding from venture capitalists. In the early 2010s, Hamilton intended to start her own tech company — but as she searched for investors, she saw that White men control nearly all venture capital dollars. That experience led her to establish Backstage Capital, a venture capital fund that invests in new companies led by underrepresented founders.

    “I said, ‘Well, instead of trying to raise money for one company, let me try to raise for a venture fund that will invest in underrepresented — and now we call them underestimated — founders who are women, people of color, and LGBTQ specifically,’ because I am all three,” Hamilton told CNN.

    Since then, Backstage Capital has amassed a portfolio of nearly 150 different companies and has made over 120 diversity investments, according to data from Crunchbase.

    But Bradley, who is also an ‘angel investor’ of minority-owned businesses, said she remains “really hopeful” that community banks, regional banks and fintechs “will all stand up and say, ‘Hey, we are not going to let the good work of SVB go to waste.’”

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  • United Bank of Michigan adds eSign capability following SVB collapse | Bank Automation News

    United Bank of Michigan adds eSign capability following SVB collapse | Bank Automation News

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    United Bank of Michigan added electronic signatures to its Federal Deposit Insurance Corp. coverage solution through its digital signature provider IMM as more bank clients became concerned about insurance following the collapse of Silicon Valley Bank last month. The $850 million, Michigan-based bank saw an influx of demand for its FDIC coverage solution through IntraFi’s […]

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    Whitney McDonald

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  • Cybersquatting a bank security concern post-SVB | Bank Automation News

    Cybersquatting a bank security concern post-SVB | Bank Automation News

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    Cybercriminals never let a good crisis go to waste.   One online security concern that has resurfaced following the recent turmoil in banks like Credit Suisse and Silicon Valley Bank is cybersquatting.  Cybersquatting is the act of registering a domain name similar to that of a reputable financial institution or other company and then emailing […]

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    Brian Stone

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  • JPMorgan Chase CEO Jamie Dimon says the banking crisis is

    JPMorgan Chase CEO Jamie Dimon says the banking crisis is

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    JPMorgan Chase CEO Jamie Dimon said in his annual letter to shareholders on Tuesday that the deposit crisis rattling the banking industry is “not yet over” and could affect the financial services sector “for years to come.” 

    Although Dimon said the bank runs that led to the sudden collapse of Silicon Valley Bank (SVB) and Signature Bank were far less dire than the 2008 financial crisis, he called for stronger financial regulations aimed at preventing “undue panic” when lenders fail.

    “Resolution and recovery regulations did not work particularly well during the recent crisis — we should bring clarity and reassurance to both the unwinding process and measures to reduce the risk of additional bank runs,” he wrote. 

    Dimon, who heads the nation’s largest bank, is a veteran of the housing crash and ensuing global financial crisis that shook Wall Street 15 years ago, and his annual letter is closely read by other banking executives and policy makers. 

    “Unknown risk”

    Regulators shuttered SVB, which catered to Silicon Valley tech companies and venture capital firms, on March 10 after depositors withdrew $42 billion from the institution in a single day. The startling failure triggered a run at smaller banks, leading to the collapse of New York’s Signature Bank two days later, while skittish depositors at other regional banks also raced to withdraw money. 

    “The unknown risk was that SVB’s over 35,000 corporate clients — and activity within them — were controlled by a small number of venture capital companies and moved their deposits in lockstep,” Dimon said.


    Senators grill top regulators on bank failures, oversight concerns

    04:43

    In hopes of stemming the crisis, JPMorgan Chase and 10 other Wall Street firms deposited $30 billion into San Francisco’s First Republic Bank to help it stay afloat. Meanwhile, Swiss regulators brokered UBS’ purchase of Credit Suisse, which had suffered years of financial losses before the crisis. 

    Although the broader banking industry panic has receded, the fallout will continue, Dimon said in his missive to JPMorgan shareholders. “As I write this letter, the current crisis is not yet over, and even when it is behind us, there will be repercussions from it for years to come.”

    “Any crisis that damages Americans’ trust in their banks damages all banks,” he added.

    By contrast, Dimon cautioned against a heavy-handed regulatory response to the bank failures. Alluding to the 2008 banking crash that leveled Lehman Brothers and almost took down other major Wall Street firms, Dimon said:

    “Major investment banks, Fannie Mae and Freddie Mac, nearly all savings and loan institutions, off-balance sheet vehicles, AIG and banks around the world — all of them failed. This current banking crisis involves far fewer financial players and fewer issues that need to be resolved.”


    Full interview: JPMorgan Chase CEO Jamie Dimon on “Face the Nation with Margaret Brennan”

    34:55

    Dimon also detailed how JPMorgan is investing in advanced artificial intelligence tools such as ChatGPT. The banking giant uses the technology in processing global payments and is studying how to use it for risk analysis, marketing and fraud analysis, among other uses. 

    To that end, JPMorgan has assembled a group of more than 900 data scientists specializing in AI and 600 engineers with expertise in machine learning. 

    “We’re imagining new ways to augment and empower employees with AI through human-centered collaborative tools and workflow, leveraging tools like large language models, including ChatGPT,” Dimon said.

    The Associated Press contributed to this report.

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  • JPMorgan’s Jamie Dimon warns banking crisis will be felt for ‘years to come’ | CNN Business

    JPMorgan’s Jamie Dimon warns banking crisis will be felt for ‘years to come’ | CNN Business

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    New York
    CNN
     — 

    The banking crisis triggered by the recent collapses of Silicon Valley Bank and Signature Bank is not over yet and will ripple through the economy for years to come, said JPMorgan Chase CEO Jamie Dimon on Tuesday.

    In his closely watched annual letter to shareholders, the chief executive of America’s largest bank outlined the extensive damage the financial system meltdown had on all banks — large and small — and urged lawmakers to think carefully before responding with increased regulation.

    “These failures were not good for banks of any size,” wrote Dimon, responding to reports that large financial institution benefited greatly from the collapse of SVB and Signature Bank as wary customers sought safety by moving billions of dollars worth of money to big banks.

    In a note last month, Wells Fargo banking analyst Mike Mayo wrote “Goliath is winning.” JPMorgan in particular, he said, was benefiting from more deposits “in these less certain times.”

    “Any crisis that damages Americans’ trust in their banks damages all banks — a fact that was known even before this crisis,” he wrote. “While it is true that this bank crisis ‘benefited’ larger banks due to the inflow of deposits they received from smaller institutions, the notion that this meltdown was good for them in any way is absurd.”

    The failures of SVB and Signature Bank, he argued, had little to do with banks bypassing regulations. He said that SVB’s high Interest rate exposure and large amount of uninsured deposits were already well-known to both regulators and to the marketplace at large.

    Current regulations, he argued, could actually lull banks into complacency without actually addressing real system-wide banking issues. Abiding by these regulations, he wrote, has just “become an enormous, mind-numbingly complex task about crossing t’s and dotting i’s.”

    And while regulatory change will almost certainly follow the recent banking crisis, Dimon argued that, “it is extremely important that we avoid knee-jerk, whack-a-mole or politically motivated responses that often result in achieving the opposite of what people intended.” Regulations, he said, are often put in place in one part of the framework but have adverse effects on other areas and just make things more complicated.

    The Federal Deposit Insurance Corporation has said it will propose new rule changes in May, while the Federal Reserve is currently conducting an internal review to assess what changes should be made. Lawmakers in Congress, including Democratic Sen. Sherrod Brown of Ohio, have suggested that new legislation meant to regulate banks is in the works.

    But, wrote Dimon, “the debate should not always be about more or less regulation but about what mix of regulations will keep America’s banking system the best in the world.”

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  • Grasshopper Bank secures fintech client using Treasury Prime’s OneKey | Bank Automation News

    Grasshopper Bank secures fintech client using Treasury Prime’s OneKey | Bank Automation News

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    Grasshopper Bank has secured a new fintech client thanks to Treasury Prime’s OneKey platform, which allows fintechs greater visibility of their accounts across multiple banks.  The $606 million bank began beta testing OneKey in March 2022. The tool assisted Grasshopper in sealing the deal with its new client, Chief Digital Officer Chris Tremont told Bank […]

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    Brian Stone

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  • Who will end up paying for the banking crisis: You | CNN Business

    Who will end up paying for the banking crisis: You | CNN Business

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    A version of this story first appeared in CNN Business’ Before the Bell newsletter. Not a subscriber? You can sign up right here. You can listen to an audio version of the newsletter by clicking the same link.


    New York
    CNN
     — 

    It cost the Federal Deposit Insurance Corporation about $23 billion to clean up the mess that Silicon Valley Bank and Signature Bank left in the wake of their collapses earlier this month.

    Now, as the dust clears and the US banking system steadies, the FDIC needs to figure out where to send its invoice. While regional and mid-sized banks are behind the recent turmoil, it appears that large banks may be footing the bill.

    Ultimately, that means higher fees for bank customers and lower rates on their savings accounts.

    What’s happening: The FDIC maintains a $128 billion deposit insurance fund to insure bank deposits and protect depositors. That fund is typically supplied by quarterly payments from insured banks in the United States. But when a big, expensive event happens — like the FDIC making uninsured customers whole at Silicon Valley Bank — the agency is able to assess a special charge on the banking industry to recover the cost.

    The law also gives the FDIC the authority to decide which banks shoulder the brunt of that assessment fee. FDIC Chairman Martin Gruenberg said this week that he plans to make the details of the latest assessment public in May. He has also hinted that he would protect community banks from having to shell out too much money.

    The fees that the FDIC assesses on banks tend to vary. Historically, they were fixed, but 2010’s Dodd-Frank act required that the agency needed to consider the size of a bank when setting rates. It also takes into consideration the “economic conditions, the effects on the industry, and such other factors as the FDIC deems appropriate and relevant,” according to Gruenberg.

    On Tuesday and Wednesday, members of the Senate Banking Committee and the House Financial Services Committee grilled Gruenberg about his plans to charge banks for the damage done by SVB and others, and repeatedly implored him to leave small banks alone.

    Gruenberg appeared receptive.

    “Will you commit to using your authority…to establish separate risk-based assessment systems for large and small members of the Deposit Insurance Fund so that these well-managed banks don’t have to bail out Silicon Valley Bank?” asked the US Rep. Andy Barr, a Republican who represents of Kentucky’s 6th district.

    “I’m certainly willing to consider that,” replied Gruenberg.

    “if smaller community banks in Texas will be left responsible for bailing out the failed banks in California and New York?” asked US Rep. Roger Williams, a Republican who represents Texas’ 25th district.

    “Let me just say, without forecasting what our board is going to vote, we’re going to be keenly sensitive to the impact on community banks,” replied Gruenberg.

    Representatives Frank Lucas, John Rose, Ayanna Pressley, Dan Meuser, Nikema Williams, Zach Nunn and Andy Ogles all asked similar questions and received similar responses. As did US Sens. Sherrod Brown and Cynthia Lummis.

    “I don’t doubt he’s still fielding a lot of phone calls,” from politicians pressuring him to place the burden on large banks, former FDIC chairman Bill Isaac told CNN.

    Smaller banks are saying that they’re unable to pick up this tab and didn’t have anything to do with the failure of “these two wild and crazy banks,” said Isaac. “They’re arguing to put the assessment on larger banks and as I understand it, the FDIC is thinking seriously about it,” he added.

    A spokesperson from the FDIC told CNN that the agency “will issue in May 2023 a proposed rulemaking for the special assessment for public comment.” In regard to Greunberg’s testimony they added that “when the boss says something, we defer to the boss.”

    Big banks: “We need to think hard about liquidity risk and concentrations of uninsured deposits and how that’s evaluated in terms of deposit insurance assessments,” said Gruenberg to the Senate Banking Committee, indicating that smaller banks that are operating carefully could be asked to bear less of the assessment.

    A larger assessment on big banks would add to what will already be a multi-billion dollar payment from the nation’s largest banks like JPMorgan Chase

    (JPM)    , Citigroup

    (C)    , Bank of America

    (BAC)     and Wells Fargo

    (WFC)    .

    The argument is that the largest US banks will be able to shoulder extra payments without collapsing under it. Those large banks also benefited greatly from the collapse of SVB and Signature Bank as wary customers sought safety by moving billions of dollars worth of money to big banks. 

    Passing it on: Regardless of who’s charged, the fees will eventually get passed on to bank customers in the end, said Isaac. “It’s going to be passed on to all customers. I have no doubts that banks will make up for these extra costs in their pricing — higher fees for services, higher prices for loans and less compensation for deposits.”

    It’s hard out there for a Wall Street banker. Or harder than it was.

    The average annual Wall Street bonus fell to $176,700 last year, a 26% drop from the previous year’s average of $240,400, according to estimates released Thursday by New York State Comptroller Thomas DiNapoli.

    While that’s a big decrease, the 2022 bonus figure is still more than twice the median annual income for US households, reports CNN’s Jeanne Sahadi.

    All in, Wall Street firms had a $33.7 billion bonus pool for 2022, which is 21% smaller than the previous year’s record of $42.7 billion — and the largest drop since the Great Recession.

    For New York City and New York State coffers, bonus season means a welcome infusion of revenue, since employees in the securities industry make up 5% of private sector employees in NYC and their pay accounts for 22% of the city’s private sector wages. In 2021, Wall Street was estimated to be responsible for 16% of all economic activity in the city.

    DiNapoli’s office projects the lower bonuses will bring in $457 million less in state income tax revenue and $208 million less for the city compared to the year before.

    Beleaguered retailed Bed Bath & Beyond will attempt to $300 million of its stock to repay creditors and fund its business as it struggles to avoid bankruptcy, reports CNN’s Nathaniel Meyersohn.

    If it’s not able to raise sufficient money from the offering, the home furnishings giant said Thursday it expects to “likely file for bankruptcy.”

    Bed Bath & Beyond was able to initially avoid bankruptcy in February by completing a complex stock offering that gave it both an immediate injection of cash and a pledge for more funding in the future to pay down its debt. That offering was backed by private equity group Hudson Bay Capital.

    But on Thursday, Bed Bath & Beyond said it was terminating the deal with Hudson Bay Capital for future funding and is turning to the public market.

    Shares of Bed Bath & Beyond dropped more than 26% Thursday. The stock was trading around 60 cents a share.

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  • Video: Fed Vice Chair Calls SVB a ‘Textbook Case of Bank Mismanagement’

    Video: Fed Vice Chair Calls SVB a ‘Textbook Case of Bank Mismanagement’

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    Michael S. Barr, the Federal Reserve’s vice chair for supervision, said Silicon Valley Bank had ignored “bread-and-butter” banking issues.

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    The New York Times

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  • How To Deal With Letters Of Credit From Silicon Valley Or Signature Bank

    How To Deal With Letters Of Credit From Silicon Valley Or Signature Bank

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    Commercial leases often require tenants to deliver letters of credit instead of cash security deposits. This practice reflects the belief that an L/C gives the owner better security than a cash deposit if the tenant goes bankrupt. Until very recently, many of those L/Cs came from Signature Bank or—especially for start-up or high-tech companies—Silicon Valley Bank.

    When those banks failed, the L/Cs they had issued temporarily became worthless, because they are not backed by deposit insurance and simply represent contractual obligations of the issuer. The federal government solved that problem quickly. The FDIC declared that the “bridge banks”—the temporary banks that took over for the failed banks—would honor all contracts of the failed banks. That would include any outstanding L/Cs. Thus, any owner that had accepted a Signature Bank L/C became the holder of a Signature Bridge Bank L/C instead. The FDIC’s announcement also stated that “all obligations of the bridge are backed by the FDIC and the Deposit Insurance Fund.”

    An owner might still worry that the L/C isn’t quite as reliable or as comforting as it was supposed to be. In that case, the owner will need to ask itself whether it can require the tenant to replace that L/C with a potentially “better” one. That will depend on the terms of the lease.

    Some leases contain elaborate provisions that would probably entitle the owner to require the tenant to replace any L/C that was issued by a bank that failed, whether or not the successor bank or the FDIC stepped up to the L/C obligation. In those cases, the owner might simply demand that the tenant perform its obligations under the lease and deliver a new L/C. In a more typical case, however, the tenant probably has no obligation to do anything about the L/C. A tenant that cares about its relationship with the owner might very well arrange a replacement of the L/C anyway, if asked to do so.

    Also, any Signature Bank or Silicon Valley Bank L/C will eventually expire and probably not be renewed, typically within a year. At that point, nearly every lease will require the tenant to deliver a replacement L/C. Of course, the owner will not want to wait around.

    If the owner can require the tenant to replace a Signature Bank or Silicon Valley Bank L/C, or if the tenant wants to cooperate if asked to make such a replacement, what happens next and how long will it take? In most cases, it’s not all that difficult for a tenant to accommodate the owner’s request and deliver a new L/C from a bank that hasn’t failed.

    Most L/Cs are issued by whatever bank provides the tenant’s revolving credit line (“revolver”). The existence of a revolver means the tenant’s bank has decided it is willing, for example, to lend the tenant up to $10,000,000 at any one time. If the bank issues an L/C with a face amount of $1,000,000, this implies the bank might need to advance $1,000,000 at any moment, if the L/C were drawn upon. The bank would treat any such advance, if made, as one made under the revolver. As long as the L/C is outstanding, therefore, the bank will limit other borrowings under the revolver to $9,000,000, to assure that the total loan balance can never exceed $10,000,000.

    If the tenant maintains several revolvers with various banks, the tenant can often obtain a replacement L/C rather quickly from another bank, assuming its revolver with that other bank has a low enough outstanding loan balance to accommodate issuance of an L/C. If the tenant had only one revolver, i.e., with only Signature Bank or Silicon Valley Bank, then the tenant won’t be able to have a revolving lender issue a replacement L/C unless and until the tenant has set up a new revolver. That can take a while, especially in an environment of tightening credit standards and lower asset valuations.

    In the meantime, the tenant might temporarily resort to a less sophisticated strategy to obtain a replacement L/C: the tenant can deposit cash with a new L/C issuer bank and then that new bank would issue an L/C backed by the cash deposit. Of course, that’s not an optimal use of cash or one that every tenant can set up instantly.

    Smaller companies that don’t maintain any revolver in the first place often need to back their L/Cs with cash collateral from day one. If one of those companies deposited cash with Silicon Valley Bank or Signature Bank, that deposit should be treated the same as any other deposit. If it’s covered by deposit insurance, which all deposits of the two failed banks now seem to be, the tenant should be able to get control of the cash rather quickly. The tenant can then use the cash as collateral to have another institution issue an L/C. That’s quicker than setting up a new revolver, but it’s still not instant.

    If the tenant delivers a new L/C in place of the L/C from a failed bank, the tenant will typically ask the property owner to release the first L/C. This would also need to happen at the same time as the tenant moves cash between banks.

    Any owner holding an L/C from Silicon Valley Bank or Signature Bank should make sure they know exactly where that L/C is stored. If no one can find it—which happens with some frequency—that can create a whole new set of problems. And today’s focus on L/Cs also reminds every property owner that they should carefully track all L/Cs – not just their location but also their amount, expiry date, and issuer.

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    Joshua Stein, Contributor

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  • First Citizens Bank purchases much of collapsed Silicon Valley Bank

    First Citizens Bank purchases much of collapsed Silicon Valley Bank

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    First Citizens Bank purchases much of collapsed Silicon Valley Bank – CBS News


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    First Citizens Bank agreed to purchase much of Silicon Valley Bank, which collapsed earlier in March. SVB’s former branches reopened Monday under the First Citizens Bank banner.

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  • Covering collapse of SVB could cost $20 billion, FDIC chairman to tell Congress

    Covering collapse of SVB could cost $20 billion, FDIC chairman to tell Congress

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    The Federal Deposit Insurance Corporation (FDIC) estimates the cost to the Deposit Insurance Fund to cover the collapse of Silicon Valley Bank is $20 billion — including $18 billion to cover uninsured deposits, according to the chairman of the FDIC, Martin Gruenberg. And the failure of Signature Bank is likely to require about $2.5 billion, including $1.6 billion to cover its uninsured deposits. 

    “I would emphasize that these estimates are subject to significant uncertainty and are likely to change, depending on the ultimate value realized from each receivership,” Gruenberg, whose agency was appointed to manage both banks after their collapse, is expected to tell lawmakers Tuesday when he testifies before the Senate Banking Committee. 

    Gruenberg and top officials from the Federal Reserve and Treasury Department are set to testify before the committee about the failures of the two banks and will attempt to reassure lawmakers that the banking system remains sound, and mismanagement is to blame for the second greatest bank failure in U.S. history.

    “SVB failed because the bank’s management did not effectively manage its interest rate and liquidity risk, and the bank then suffered a devastating and unexpected run by its uninsured depositors in a period of less than 24 hours,” Federal Reserve Vice Chair of Supervision Michael Barr will tell senators according to his prepared remarks about the bank, which collapsed on Mar. 10. He is also expected to say the bank waited too long to address its problems. 

    Barr is leading the Federal Reserve’s review of the two bank failures. That report will be released May 1. In his remarks, Barr notes that the Federal Reserve was fully responsible for the federal supervision and regulation of the bank, and the Fed’s review will examine both the growth and management of Silicon Valley Bank, as well as the Fed’s engagement with the bank and regulatory requirements that applied to the bank.

    “SVB’s failure demands a thorough review of what happened, including the Federal Reserve’s oversight of the bank,” Barr will say. “I am committed to ensuring that the Federal Reserve fully accounts for any supervisory or regulatory failings, and that we fully address what went wrong.”

    The sale of each of the FDIC managed bridge banks has been completed; a large portion of Signature Bank was sold to Flagstar Bank, and SVB has been sold to First Citizens Bank.

    The FDIC has already started its own investigation into who should be held accountable in the wake of the failures. According to his prepared remarks, Gruenberg is expected to tell lawmakers that the FDIC will review the deposit insurance system, and will release its report at the same time as the Fed issues its report, on May 1. 

    As fears spread about the solvency of the banking system, the Treasury Department, Federal Reserve and FDIC announced on Mar. 12 that the FDIC would be able to guarantee all deposits at both Silicon Valley Bank and Signature Bank beyond its stated limit of $250,000. 

    The losses to the Deposit Insurance Fund will have to be recovered through special assessments on banks. The FDIC aims to issue more information on those assessments related to the failures of Signature Bank and Silicon Valley Bank, taking into account input from the public comment process in May.

    Despite the recent failures, Gruenberg will also argue that the U.S. banking system remains sound.

    Sarah Ewall-Wice

    CBS News reporter covering economic policy.

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  • This is why SVB imploded, says top Fed official | CNN Business

    This is why SVB imploded, says top Fed official | CNN Business

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    New York
    CNN
     — 

    Silicon Valley Bank imploded due to mismanagement and a sudden panic among depositors, a top Federal Reserve official plans to tell lawmakers at a hearing on Tuesday.

    In prepared testimony released on Monday, Michael Barr, the Fed’s vice chair for supervision, details how SVB leadership failed to effectively manage interest rate and liquidity risk.

    “SVB’s failure is a textbook case of mismanagement,” Barr says in testimony to be delivered before the Senate Banking Committee.

    The Fed official points out that SVB’s belated effort to fix its balance sheet only made matters worse.

    “The bank waited too long to address its problems and, ironically, the overdue actions it finally took to strengthen its balance sheet sparked the uninsured depositor run that led to the bank’s failure,” said Barr, adding that there was “inadequate” risk management and internal controls.

    Depositors yanked $42 billion from SVB on March 9 alone in a bank run, a panic that appeared to be fueled in part by venture capitalists urging tech startups to pull their funds.

    “Social media saw a surge in talk about a run, and uninsured depositors acted quickly to flee,” said Barr.

    The Fed official echoed comments from other top regulators in assuring the public about the safety of banks.

    “Our banking system is sound and resilient, with strong capital and liquidity,” Barr said. “We are committed to ensuring that all deposits are safe. We will continue to closely monitor conditions in the banking system and are prepared to use all of our tools for any size institution, as needed, to keep the system safe and sound.”

    Facing questions over how regulators — including at the Fed itself — missed red flags at SVB, the Fed has launched a review of oversight of the bank. Barr, who is leading that review, promised to take an “unflinching look” at the supervision and regulation of SVB. He said the review will be thorough and transparent and officials welcome and expert external reviews as well.

    In his testimony, Barr discloses that near the end of 2021, bank supervisors found “deficiencies” in the bank’s liquidity risk management. That resulted in six supervisory findings linked to SVB’s liquidity stress testing, contingency funding and liquidity risk management.

    Then, in May 2022, supervisors issued three findings related to “ineffective” board oversight, risk management weaknesses and internal audit function lapses, Barr said. Bank supervisors took further steps last year that show regulators were aware of problems at SVB.

    Barr’s testimony indicates the Fed’s review will examine how the 2018 rollback of Dodd-Frank may have contributed to SVB’s failure. That rollback, under then-President Donald Trump, allowed SVB to avoid tougher stress testing and rules on liquidity, funding, leverage and capital.

    Barr said the Fed will weigh whether the applying those tougher rules to SVB would have helped the bank manage the risks that led to its failure.

    Looking ahead, Barr said the recent events have underscored how regulators must enhance rules applying to banks and study banking has been changed by social media, customer behavior, rapid growth and other developments.

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  • First Citizens Buys Silicon Valley Bank | Entrepreneur

    First Citizens Buys Silicon Valley Bank | Entrepreneur

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    The bank consolidation game continues.

    On Sunday, The Federal Deposit Insurance Corporation (FDIC) announced a deal had come together for the purchase of Silicon Valley Bank (SVB).

    Related: ‘A Day We Hoped Would Not Come’: Competing Swiss Bank UBS Buys Credit Suisse

    The buyer is First Citizens Bank & Trust, which is based in North Carolina and can trace its beginnings back to 1898, according to its website. It will acquire all of the loans and deposits of SVB. It will also assume the operation of its 17 locations, effective Monday.

    “Customers… should continue to use their current branch until they receive notice from First–Citizens Bank & Trust Company that systems conversions have been completed,” the FDIC wrote.

    SVB’s collapse happened earlier this month, and with the financial sector already dealing with rising interest rates and a collapsed cryptocurrency market, panic ensued, and the resulting contagion temporarily destabilized the stock prices of smaller banks. Signature Bank in the U.S. also faced a bank run, was taken over by the FDIC, and acquired by New York Community Bank. Switzerland-based Credit Suisse, which had long struggled under the weight of scandal, was purchased by competitor UBS.

    SVB’s main clientele had been startups and venture capitalists and was the “most popular” bank in that group, Elizabeth Yin, general partner at Hustle Fund, previously told Entrepreneur.

    But this deal was somewhat expected.

    The FDIC took control of SVB a few days after it experienced a bank run earlier this month and created an entity called Silicon Valley Bridge Bank, “to stabilize the institution and market the franchise,” as the FDIC wrote in its press release, meaning the government entity would then find a buyer to take over SVB.

    Bloomberg reported on Sunday that First Citizens was in “advanced talks” to acquire the bank, “according to people familiar with the matter.”

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    Gabrielle Bienasz

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  • First Citizens to buy SVB after biggest failure since 2008 | Bank Automation News

    First Citizens to buy SVB after biggest failure since 2008 | Bank Automation News

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    First Citizens BancShares Inc. agreed to buy Silicon Valley Bank after a run on deposits wiped out the company in the biggest US bank failure in more than a decade. The deal to settle SVB’s fate could help tamp down some of the turmoil that has engulfed the financial world, and shares of regional banks […]

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  • Raleigh’s First Citizens Bank will buy Silicon Valley Bank

    Raleigh’s First Citizens Bank will buy Silicon Valley Bank

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    First Citizens Bank is photographed in Raleigh, N.C. on Monday, March 27, 2023.

    First Citizens Bank is photographed in Raleigh, N.C. on Monday, March 27, 2023.


    Kaitlin McKeown

    kmckeown@newsobserver.com

    RALEIGH

    Raleigh’s First Citizens Bank is buying most of Silicon Valley Bank, the tech-focused financial institution which collapsed earlier this month.

    First Citizens will acquire all deposits and loans of the former Silicon Valley Bank in exchange for company stock worth up to $500 million, the Federal Deposit Insurance Corporation (FDIC) announced Sunday. The FDIC had controlled Silicon Valley Bank since it failed following a bank run on March 10.

    In the agreement, all Silicon Valley depositors will automatically transfer to First Citizens, and on Monday, the 17 former Silicon Valley branches will open as First Citizens Bank locations.

    “First Citizens has a proud history of growing organically and through strategic acquisitions that build our core capabilities in a careful and deliberate manner,” First Citizens CEO Frank Holding Jr. said in a statement Monday. “This transaction leverages our solid foundation to add significant scale, geographic diversity, compelling digital capabilities and most importantly, meaningful solutions for customers throughout their lifecycle.”

    Holding added the deal will “accelerate” the company’s expansion goals in California and the Northeast.

    First Citizens and the FDIC entered a loss-share agreement which ensures both parties will share in the potential recovery and losses on loans, the government and bank announced.

    “We welcome the news, which comes at no cost to taxpayers,” White House Press Secretary Karine Jean-Pierre said.

    “The banking system is safe,” Jean-Pierre added. “Americans can be confident, and we have seen deposits stabilize at regional banks throughout the country, and in some cases outflows have modestly reversed. What we have done these past 14 days has worked.”

    The FDIC had given bidders until Friday night to make offers for Silicon Valley Bank.

    First Citizens Bank is photographed in Raleigh, N.C. on Monday, March 27, 2023.
    First Citizens Bank is photographed in Raleigh, N.C. on Monday, March 27, 2023. Kaitlin McKeown kmckeown@newsobserver.com

    What is First Citizens Bank?

    According to a Federal Reserve database, First Citizens was the 30th largest bank in the country by consolidated assets at the end of last year. It operates 582 branches and offices nationwide, 60% of which were in North Carolina or South Carolina. It is the Carolinas’ fourth largest bank, behind Bank of America, Truist, and Wells Fargo, and employs more than 2,000 in the Triangle area, according to Wake County Economic Development.

    First Citizens was founded in Johnston County in 1898, and for most of the past century, it’s been helmed by three generations of the Holding family. The company’s headquarters are in the North Hills neighborhood of Raleigh.

    Silicon Valley isn’t the first major purchase First Citizens has made in recent years.

    In January 2022, its parent company First Citizens BancShares purchased New York-based CIT Group for approximately $2.2 billion. According to First Citizens spokesperson Angela English, First Citizens has bought more than 20 FDIC-backed banks since 2009.

    In its purchase of Silicon Valley, First Citizens will take on $110 billion in assets, $56 billion in deposits, and $72 billion in loans, the company said Monday.

    During an investor call Monday, Holding recognized his bank “is not well known for expertise in the digital innovation economy.” In the industry, First Citizens has been viewed as a more traditional bank, far from the profile of Silicon Valley Bank, which geared its services toward early-stage technology startups.

    But Holding pointed out “our home market in Raleigh” is a leader in innovation.

    “We are committed to continuing to help innovators, enterprises, and investors move bold ideas forward,” he said. “This acquisition positions First Citizens to support that growth both for Silicon Valley’s markets and right here in our own backyard in the Research Triangle Park by combining First Citizens’ traditional relationship banking, creativity and ability with the strengths, relationships, and expertise of legacy SVB.”

    As of midday Monday, First Citizens stock was trading up 50% from its previous closing.

    Washington correspondent Danielle Battaglia contributed to this report.

    ‘This story was produced with financial support from a coalition of partners led by Innovate Raleigh as part of an independent journalism fellowship program. The N&O maintains full editorial control of the work.

    Open Source

    Do you enjoy Triangle tech news? Subscribe to Open Source, The News & Observer’s weekly technology newsletter and look for it in your inbox every Friday morning. Sign up here.

    This story was originally published March 27, 2023, 7:11 AM.

    Related stories from Charlotte Observer

    Brian Gordon is the Innovate Raleigh reporter for The News & Observer and The Herald-Sun. He writes about jobs, start-ups and all the big tech things transforming the Triangle.

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  • First Citizens Bank buying

    First Citizens Bank buying

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    FDIC: First-Citizens Bank to purchase assets of Silicon Valley Bank


    FDIC: First-Citizens Bank to purchase assets of Silicon Valley Bank

    00:36

    First Citizens Bank will buy “all the deposits and loans” of Silicon Valley Bank in the wake of SVB’s collapse earlier this month, the Federal Deposit Insurance Corporation announced late Sunday. SVB was the biggest U.S. bank to fail since 2008, sparking global fears about the sector.

    The new transaction covers $119 billion in deposits and $72 billion in assets, and “SVB’s 17 branches will open as First Citizens” on Monday, the FDIC said.

    Depositors of SVB will “automatically become depositors of First Citizens Bank and the FDIC will continue to insure deposits, the agency said.

    In addition, anyone with loans from SCB should continue to make payments, including escrow payments, as usual; the terms of your loan will not change,” the FDIC said.

    First Citizens, headquartered in Raleigh, North Carolina, said the deal will preserve its solid financial position and the merged company will still be resilient, with a diverse loan portfolio and deposit base. “Prudent risk management approach will continue to protect customers and stockholders through all economic cycles and market conditions,” the statement said.

    Santa Clara, Calif.-based SVB — the United States’ 16th biggest bank by assets and a key lender to startups in the country since the 1980s — failed after a sudden run on deposits, prompting regulators to seize control and rattling the banking industry.

    Along with the FDIC, the Treasury Department and Federal Reserve had set out plans to ensure SVB customers would be able to access their deposits, while the Fed introduced a new lending tool for banks in an effort to prevent a repeat of SVB’s quick demise.

    SVB’s collapse sparked a crisis of confidence among the customers of similarly sized U.S. banks, with many withdrawing their money and depositing it into bigger institutions seen as too big for the government to not bail out in a crisis.

    The turmoil also spread to Europe, where troubled Swiss lender Credit Suisse was taken over by UBS.

    Most recently, shares in long-troubled Deutsche Bank fell heavily on Friday on the lender’s surging cost of default cover, reigniting fears about a widening banking sector crisis.

    Despite global contagion fears, central banks have pushed on with monetary tightening as they focus on fighting inflation — even though the troubles in the banking sector have been linked to their rate hikes. 

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  • Video: Yellen Calls for Review of Financial Regulations After Bank Collapses

    Video: Yellen Calls for Review of Financial Regulations After Bank Collapses

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    Treasury Secretary Janet L. Yellen suggested that new financial regulations may be necessary to prevent future bank runs.

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    Reuters

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  • Federal Reserve Hikes Interest Rates Again, Despite Bank Failures

    Federal Reserve Hikes Interest Rates Again, Despite Bank Failures

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    WASHINGTON ― The Federal Reserve on Wednesday continued to ramp up its efforts to slow the economy, despite recent bank failures caused partly by rising interest rates.

    The central bank announced it is raising interest rates by another quarter of a percentage point, the ninth rate hike since the Fed kicked off its battle against inflation in March 2022.

    Mark Zandi, chief economist of Moody’s Analytics, a financial analysis firm, said that continuing to hike interest rates runs contrary to the government’s recent efforts to stabilize banks.

    “The Fed’s decision to raise rates is incongruous with efforts to re-establish the stability of the financial system,” Zandi told HuffPost in an email. “It shows a willingness to roll the dice with the financial system and economy to get inflation down more quickly.”

    “The last few weeks of financial turmoil have shown that interest rate hikes are wreaking havoc on our financial system. Adding more fuel to the fire will only exacerbate the instability that is of the Fed’s own making.”

    – Rakeen Mabud, chief economist with Groundwork Collaborative

    Higher interest rates make money more expensive to borrow, causing people to spend less. The Fed is hoping the economy will cool off just enough that businesses set lower prices for goods and services.

    But another potential consequence of higher rates is financial instability ― not to mention potentially massive layoffs.

    Overall annual inflation has fallen from its peak of 9.1% last summer to 6% in February, but the recent pace of decline has been too slow for the Fed’s liking.

    The Fed’s strategy has been controversial from the start, with progressives calling on the central bank to lay off the rate hikes so as to avoid causing a recession. After all, the higher prices resulted partly from supply chain problems ― such as factories shutting down in China because of COVID ― that are entirely outside the Fed’s control.

    But the recent failure of Silicon Valley Bank in California illustrated another way that interest rates can cause economic turmoil ― by making investors complacent about the risk of interest rates rising after a long period of cheap money.

    Customers and bystanders form a line outside a Silicon Valley Bank branch location on March 13. The bank’s failure sent shock waves throughout the U.S. and global banking systems.

    Silicon Valley Bank invested depositors’ money in low-yield government bonds that lost value when interest rates rose last year. When panicky depositors started withdrawing their money last month, the bank couldn’t pay them. (BuzzFeed, HuffPost’s parent company, banked with SVB.)

    “Today’s rate hike is a reckless move by Chair [Jerome] Powell and the Fed,” Rakeen Mabud, chief economist with Groundwork Collaborative, a group of progressive economic experts, said Wednesday. “Chair Powell knows that his aggressive rate-hiking campaign has the potential to cause mass unemployment and economic devastation for millions across the country.”

    “The last few weeks of financial turmoil have shown that interest rate hikes are wreaking havoc on our financial system,” she said. “Adding more fuel to the fire will only exacerbate the instability that is of the Fed’s own making.”

    In addition to overseeing the money supply, one of the Fed’s jobs is supervising banks ― which it seemingly failed to do in Silicon Valley Bank’s case, after Congress passed a law in 2018 telling regulators to go easy on regional financial institutions.

    The Federal Reserve, the U.S. Treasury Department and the Federal Deposit Insurance Corporation swooped in to guarantee deposits at SVB and to make loans available to other regional banks with antsy depositors. Some Republican lawmakers decried the moves as a “bailout,” but officials insisted they had to make depositors whole in order to prevent a broader financial crisis.

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  • What to expect from today’s Federal Reserve meeting

    What to expect from today’s Federal Reserve meeting

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    What to expect from today’s Federal Reserve meeting – CBS News


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    The Federal Reserve will decide whether it needs to boost interest rates again at a meeting Wednesday. Inflation still remains high, but the nation’s recent banking crisis is causing concern over how the Fed should respond. CBS News senior White House and political correspondent Ed O’Keefe has more, and then Ann Berry, the founder of Threadneedle Strategies, joins CBS News to discuss the next steps for the Fed.

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