UPDATED: In face of run, Silicon Valley Bank becomes first to close in ’23; FDIC creates new institution to accept deposits

A Santa Clara, Calif., bank largely serving the tech industry was closed Friday by state regulators, which immediately prompted federal regulators to charter a new bank to accept the deposits of the closed bank, the federal insurer of bank deposits said Friday.

Silicon Valley Bank was closed, the Federal Deposit Insurance Corp. (FDIC) said, by the California Department of Financial Protection and Innovation. The FDIC then created the Deposit Insurance National Bank of Santa Clara (DINB) and, the agency said, immediately transferred to the DINB all insured deposits of Silicon Valley Bank.

The FDIC made the deposit transferal as receiver of the closed bank. The agency gave no reason, in a release, for why it closed Silicon Valley Bank. However, the Associated Press (AP) said Friday that the agency took the action to stem a depositor run on the bank.

It is the first bank to be closed this year and the first in more than two years to be closed by the agency, it said in a release. The AP reported Silicon Valley is the 16th-largest bank in the U.S. and the biggest bank failure since Washington Mutual during the height of the 2008 financial crisis.

The agency did cite the Federal Deposit Insurance Act (FDIA) in its release, noting that the law allows the FDIC create an entity such as DINB to ensure that customers have continued access to their insured funds.

According to the FDIC, Silicon Valley Bank had approximately $209 billion in total assets and about $175.4 billion in total deposits at the end of last year. At the time of the bank’s closing, the agency said, the amount of deposits in excess of the insurance limits was undetermined. The amount will be determined once the FDIC obtains additional information from the bank and customers, the agency said.

However, independent news reports Friday indicated that the uninsured deposits at the bank account for more than 90% of all deposits. The FDIC has not confirmed that number.

All insured depositors will have full access to their insured deposits no later than Monday, March 13, when all 17 offices and the main office of the closed bank reopen under the DINB name, the FDIC said. That includes online banking and other services.

Uninsured depositors will be paid an advance dividend within the next week, the FDIC said; uninsured depositors will also get a receivership certificate for the remaining amount of their uninsured funds.

As the assets of Silicon Valley Bank are sold off, the FDIC said, future dividend payments may be made to uninsured depositors.

FDIC Creates a Deposit Insurance National Bank of Santa Clara to Protect Insured Depositors of Silicon Valley Bank, Santa Clara, California

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