Topline
Asia-based clients of Silicon Valley Bank were not protected by the U.S. banking regulator’s deposit protection after the bank collapsed in March—meaning those customers are still required to pay back loans to new owner First Citizens bank, the Wall Street Journal reported Monday, as the fallout of the crisis lingers.
The logo of First Citizens Bank is seen at a branch location in Beverly Hills, Calif., Tuesday, … [+]
Key Facts
In March, a run on the bank and an ill-fated effort to sell off U.S. treasury bonds caused SVB to collapse and be taken over by federal regulators.
After that collapse, the FDIC stepped in to ensure that all U.S. SVB customers’ deposits were protected before selling SVB’s accounts, branches and loans to First Citizens Bank.
However, that protection did not extend to the bank’s clients in China, Singapore and other parts of Asia that held deposits in SVB’s branch in the Cayman Islands, according to the Journal.
Now, those Asian clients, who lost their deposits during the collapse, still have to pay back loans to First Citizens Bank, which acquired the loans during the FDIC’s cleanup of the collapse.
Customers are telling the Journal that the money earmarked to repay those loans was in the bank accounts that were lost in the collapse.
What To Watch For
How this will be settled. The clients are reportedly under pressure to make payments on these short-term loans. Some of the affected customers asked First Citizens Bank if they can set off their loans with the deposits from their Cayman bank accounts, according to the Journal. However, First Citizens Bank reportedly told the Journal this wouldn’t be legally possible because the bank only owns the credit lines. The Cayman deposits were with SVB’s former holding company, SVB Financial Group. First Citizens Bank has reportedly told the customers that it is open to giving them more time to repay the debt. The bank is also no longer accepting additional credit line increases, according to the Journal.
News Peg
SVB’s collapse was the third largest biggest collapse in U.S. history. It was quickly followed by two other bank collapses, First Republic Bank and Signature Bank, the second and fourth largest collapses in U.S. history respectively, according to the New York Times. This quick succession of large collapses generated fears—that have so far not come to pass—of a widespread banking crisis reminiscent of one that launched 2008’s Great Recession.
Further Reading
SVB Customers Who Lost Their Deposits Remain on the Hook for Loans (The Wall Street Journal)
The Fed Weighs In On The Silicon Valley Bank Demise (Forbes)
How To Protect Your Business From Bank Failure Fallout (Forbes)
Source: https://www.forbes.com/sites/willskipworth/2023/06/19/some-silicon-valley-bank-customers-still-owe-loan-payments-despite-losing-their-deposits-report-says/