FDIC considers breaking up Silicon Valley Bank, relaunching sale process: report
Under the potential plan, Silicon Valley Bank's consumer and private banking divisions would be auctioned separately
Allianz chief economic adviser Mohamed El-Erian says Silicon Valley Bank’s ‘perfect storm’ collapse resulted from mismanagement, ‘lapses’ in supervision by the Fed, and its handling of interest rate hikes.
Federal regulators are reportedly looking to relaunch the process for selling Silicon Valley Bank (SVB) and may look to break up the failed financial institution after the initial auction proved unsuccessful in attracting buyers.
The Federal Deposit Insurance Corporation (FDIC) held an auction for SVB last weekend after it failed amid a bank run in the preceding days, but after the banking regulator solicited bids, none were approved.
Now, the FDIC is considering an option for moving forward and relaunching the auction after breaking up SVB into at least two components, according to a report by Bloomberg that cited sources familiar with the matter.
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The FDIC is reportedly considering breaking up Silicon Valley Bank to entice prospective buyers into acquiring the failed firm's assets. (AP Photo/Jeff Chiu / AP Newsroom)
It’s unclear at this time whether the FDIC will indeed split up Silicon Valley Bank, but the option under consideration would involve SVB being split into two entities with separate auction deadlines.
Under the potential plan, SVB’s private bank – which offers services to high-net-worth customers – would be a separate entity with a Wednesday deadline for it to be auctioned.
Meanwhile, SVB’s depositary bank, which houses all of its consumer deposits, would be put up for sale in a separate auction with bids due Friday.
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The FDIC took Silicon Valley Bank into receivership on March 10, 2023, after it failed amid a bank run and liquidity crunch. (AP Photo/Peter Morgan / AP Newsroom)
Reuters reported that sources familiar with the plan cautioned that the plans could change. Bids for the entirety of SVB were due Sunday.
The FDIC has informed banks that are weighing potential offers for SVB and Signature Bank, a New York-based firm that failed shortly after SVB, that the regulator may retain some of the assets that are underwater at the failed lenders as a means of making an acquisition more attractive to prospective buyers.
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SVB was overexposed to long-dated government securities that created substantial interest rate risk as the Federal Reserve hiked rates to tamp down inflation.
The price of a bond decreases as interest rates rise, so SVB had to sell off portions of its bond portfolio at a loss to meet its depositors’ demands for withdrawals as their concerns about the bank’s long-term viability mounted. That, in turn, exacerbated the liquidity crunch facing SVB, as more depositors with accounts in excess of the FDIC's $250,000 cap on insured deposits responded by rushing to withdraw their funds.
| Ticker | Security | Last | Change | Change % |
|---|---|---|---|---|
| SIVB | n.a. | n.a. | n.a. | n.a. |
| SBNY | SIGNATURE BANK (NEW YORK NEW YORK) | 3.1 | -0.21 | -6.34% |
Reuters contributed to this report.