Securities Regulation Daily Wrap Up, FINANCIAL INTERMEDIARIES—Signature Bank closes as government scrambles to support, shore up regional banking system, (Mar 13, 2023)

By Joe Cox, J.D. and Nora Macaluso

SEC, lawmakers, and banking groups also reacted to the collapse of Signature Bank and Silicon Valley Bank amid questions about market stability and whether Dodd-Frank Act rollbacks contributed to either or both bank failures.

SEC Chair Gary Gensler said on Sunday that the SEC is monitoring recent banking developments for market stability and securities violations, but the primary response has been from federal and state banking regulators who, also on Sunday, announced that the New York Department of Financial Services (DFS) had closed Signature Bank. The Federal Deposit Insurance Corporation was immediately appointed as receiver for the bank, as the FDIC transferred all deposits and most assets to Signature Bridge Bank, N.A., which will be operated by the FDIC as the defunct Signature Bank is marketed to potential purchasers.

Failed bank information for Signature Bank, including frequently asked questions, was posted on the FDIC’s website. The FDIC also announced it transferred all deposits—both insured and uninsured—and substantially all of the assets of the former Silicon Valley Bank of Santa Clara, California, to a newly created, full-service FDIC-operated “bridge bank” in an action designed to protect all depositors of Silicon Valley Bank. The federal government acted to protect all depositors and President Biden has pledged both the security of depositors and that the costs of the failure of both Signature Bank and Silicon Valley Bank will not be borne by taxpayers.

Signature Bank history. Signature Bank was a New York state-chartered commercial bank which was FDIC insured and as of the end of 2022, held total assets of approximately $110.36 billion with total deposits of approximately $88.59 billion. Signature Bank had 40 branches including locations in California, Nevada, Connecticut, New York, and North Carolina. The FDIC’s move of deposits and assets to Signature Bridge Bank is intended to ensure that customers have full and immediate availability to online banking and use of ATM machines, debit cards, and checks drawn on the defunct Signature Bank. The FDIC named Greg D. Carmichael, former president and CEO of Fifth Third Bancorp, to serve as CEO of Signature Bridge Bank.

Joint financial statement pledges security. In a joint statement, Treasury Secretary Janet Yellen, Federal Reserve Board Chair Jerome Powell, and FDIC Chair Martin Gruenberg announced the systemic risk exception for Signature Bank, noting that the bank had been closed on Sunday by its state chartering authority. The statement assured depositors that they would all be made whole. The release did note that shareholders and “certain unsecured debtholders” will not be protected by the federal actions.

“The U.S. banking system remains resilient and on a solid foundation, in large part due to reforms that were made after the [2008] financial crisis that ensured better safeguards for the banking industry” assured the leaders in their joint statement. “Those reforms combined with today’s actions demonstrate our commitment to take the necessary steps to ensure that depositors’ savings remain safe.”

The Fed also announced that it will make additional funding available to eligible depository institutions so that banks can meet the needs of their depositors. This funding, made available via a new Bank Term Funding Program, will offer loans of up to one year to banks, savings associations, credit unions, and other eligible depository institutions pledging U.S. Treasuries, agency debt and mortgage-backed securities, and other qualifying assets as collateral. The Department of Treasury will make up to $25 billion from the Exchange Stabilization Fund available for these purposes.

President Biden response. President Biden has also made statements twice in support of the new actions. Sunday, the President noted that he was “pleased” with “a prompt solution that protects American workers and small businesses, and keeps our financial system safe.” President Biden also indicated his pleasure that the solution “ensures that taxpayer dollars are not put at risk.” Later in this statement, the President stated, “I am firmly committed to holding those responsible for this mess fully accountable and to continuing our efforts to strengthen oversight and regulation of larger banks so that we are not in this position again.”

As reported in the Washington Post and New York Times, Biden spoken again on Monday prior to the opening of the stock market, indicating that managers would be replaced at Signature Bank and Silicon Valley Bank, and that while customers would keep access to their money, bank investors would not be protected. “They knowingly took a risk,” the President said of such investors. “And when the risk didn’t pay off, investors lose their money. That’s how capitalism works.”

Congressional reaction. News that the government stepped in over the weekend to protect insured depositors of the failed Silicon Valley Bank (see Banking and Finance Law Daily, March 10, 2023) and Signature Bank drew reactions from Congress and banking industry groups, as President Biden told Americans they can have confidence that the financial system is safe.

Senate Banking Committee Chairman Sherrod Brown (D-Ohio) and House Financial Services Committee Ranking Member Maxine Waters (D-Calif) issued a joint statement commending the Treasury, Fed, and FDIC for “coming together to address the Silicon Valley Bank and Signature Bank failures and protect the financial system.” The actions “will enable workers to receive their paychecks and for small businesses to survive, while providing depository institutions with more liquidity options to weather the storm,” the lawmakers said. They also urged regulators to “ensure the banking system remains stable, strong, and resilient” and that “depositors’ money is safe.”

Senator Tim Scott (R-SC), Ranking Member on the Banking Committee, stressed the importance of bringing markets “to a calm and orderly resolution.” He added: “Building a culture of government intervention does nothing to stop future institutions from relying on the government to swoop in after taking excessive risks.”

Senator Elizabeth Warren (D-Mass), who sits on the Senate Banking and Finance Committees, said the Trump-era rollback of “too-big-to-fail” rules for smaller banks contributed to Silicon Valley Bank’s collapse. “SVB executives must be held accountable for any malfeasance or mismanagement that led to this failure,” she said.

Senator Bernie Sanders (I-Vt) called the bank’s failure “a direct result” of the “absurd” legislation rolling back requirements for banks like Silicon Valley Bank. “Let us have the courage to stand up to Wall Street, repeal the disastrous 2018 bank deregulation law, break up too big to fail banks and address the needs of working families, not the risky bets of vulture capitalists,” he said.

Senate Banking Committee member Mark Warner (D-Va) said the Fed, FDIC, and Treasury “acted as Congress intended when we wrote Dodd-Frank,” and their quick action will help companies make payroll and preserve jobs all across the country.”

House FSC Chairman Patrick McHenry (R-NC) stressed the need to look at “facts” instead of “speculation” when considering how to proceed. “I have confidence in our financial regulators and the protections already in place to ensure the safety and soundness of our financial system,” he said.

House FSC Ranking Member Maxine Waters (D-Calif) said she was “alarmed” by Silicon Valley Bank’s failure, but added that she is “confident in America’s financial markets and the ability of our regulators to protect consumers and investors.”

Representative Ayanna Pressley (D-Mass), a member of the House FSC, called for the committee to hold a hearing investigating the Silicon Valley Bank collapse and “how Republicans’ 2018 bank deregulation bill contributed to SVB’s risky behavior and jeopardized financial stability for far too many.”

Industry reaction. Better Markets issued a statement calling for “immediate accountability” from federal regulators and bank executives and board members. “One of the biggest injustices of the 2008 crash was the government’s unlimited, unconditional, ‘no strings’ bailouts of banks and bankers without any accountability for their greedy, reckless, and often illegal conduct,” said President and CEO Dennis M. Kelleher. “The Biden administration must not repeat the mistakes of the past,” he added. The Fed, he said, “failed miserably” by not taking action amid warning signs of trouble and added that “there must be a full and independent investigation” of the central bank’s conduct.

Public Citizen urged Congress to hold hearings “to investigate the causes and implications” of Silicon Valley Bank’s failure, including whether the Dodd-Frank Act was a factor and whether the “special nature” of Silicon Valley Bank’s operations, including its funding of venture capital, played a role.

The Independent Community Bankers of America pointed out that community banks stand “in stark contrast” to larger banks such as Silicon Valley Bank and operate under a different business model. “As small businesses themselves, local community banks take pride in serving the unique needs of their customers and communities,” ICBA President and CEO Rebeca Romero Rainey said. ICBA will “vehemently oppose community banks bearing any financial responsibility for potential losses to the deposit insurance fund,” Rainey said. In a separate statement, ICBA emphasized that “it is ensuring the community banking voice is being heard while it reminded consumers they can bank with confidence at a community bank.”

Companies: Signature Bank; Signature Bridge Bank, N.A.; Silicon Valley Bank

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