Last Friday, Silicon Valley Bank (SVB) was abruptly closed and designated for receivership with the Federal Deposit Insurance Corporation (FDIC). The closure of the bank is notable because SVB had over $200 billion in deposits and was the financial institution of choice for startups, fintechs and their venture capital / private equity partners, many of whom held deposits in excess of the FDIC-insured limit of $250,000.
By Sunday evening, Signature Bank (Signature), a New York state-chartered bank with diverse business lines—including commercial real estate and cryptocurrency banking— was also shuttered, prompting the Department of Treasury, the Federal Reserve and the FDIC to announce emergency measures to prevent losses to all depositors and provide liquidity support to banks.
By Monday afternoon, the FDIC further announced that all bank deposits at SVB—both insured and uninsured—had been transferred to a new FDIC-operated “bridge bank” called Silicon Valley Bank, N.A (SVB N.A.). This fully operational national bank will operate in the interim until the FDIC can secure a buyer for SVB. The establishment of SVB N.A. means that all deposits at SVB N.A. are now fully accessible and that all bank deposits will be fully protected. Nonetheless, the FDIC reiterated that shareholders and certain unsecured debt holders will not be protected. Those with exposure to SVB can verify their insurance status through the FDIC’s claims portal.
Zooming out, the banking landscape for digital asset funds and managers in the US remains in flux, and the sudden collapse of SVB and Signature underscores the importance of fund managers actively monitoring their banking relationships and market developments to ensure they are taking appropriate measures to safeguard client assets. As an example, fund managers should evaluate whether it is in their clients’ best interests to bank with multiple partners to limit individual bank exposure or, at a minimum, have a secondary banking partner.
We are committed to assisting our clients with navigating the current landscape and have already reached out to our network of banking partners, including those that continue to work with digital asset funds and managers. Please feel free to reach out to us should you have any questions.