Contracts previously entered with two failed banks, now in receivership with the federal bank deposit insurance agency, must still be honored, the agency said in a letter to insured institutions issued late Tuesday.
The Federal Deposit Insurance Corp. (FDIC), in a financial institution letter (FIL-10-2023), said all contracts in effect with Silicon Valley Bank, N.A., of Santa Clara, Calif., and Signature Bank, N.A., of New York, N.Y., before they failed (along with their counterparties) were transferred to the two bridge banks the agency created when the banks failed on Friday, March 10, and Sunday, March 12, respectively. Those bridge banks are Silicon Valley Bridge Bank, N.A., and Signature Bridge Bank, N.A.
“Accordingly, vendors and counterparties with contracts with the bridge bank are legally obligated to continue to perform under the contracts, and the bridge is obligated to and has the full ability to make timely payments to vendors and counterparties and otherwise perform its obligations under the contract,” the FDIC wrote in the FIL.
The letter also noted:
- Each bridge bank is performing under all failed bank contracts and the FDIC expects all counterparties to similarly fulfill their contractual obligations.
- All vendors providing services should continue to provide such services to the bridge banks.
- All authorized signers, account details, Tax Identification Number (TIN), wire/ACH instructions, and pre–failure processes remain in effect, and can and should be utilized to provide such services, until such time as the bridge bank notifies a vendor.
- The FDIC has the authority, under federal law, to enforce the contracts. Failure to meet contract obligations may result in legal action by the U.S. government, the letter added.
“Accordingly, vendors and counterparties with contracts with the bridge bank are legally obligated to continue to perform under the contract, and the bridge is obligated to and has the full ability to make timely payments to vendors and counterparties and otherwise perform its obligations under the contract,” the agency’s letter stated.
Financial Institutions are Required to Meet Contractual Obligations with Bridge Banks