The collapse of Silicon Valley Bank (SVB) highlighted for the Federal Deposit Insurance Corporation (FDIC) some of the impediments to a quick bank sale, including failing to provide rapid access to quality financial data and lists of key employees.
Travis Hill, vice chairman of the FDIC, said in a speech Wednesday the sale of SVB in particular was hindered by its inability to populate a data room.
It took 16 days from the time SVB failed on March 10 until First Citizens Bank of North Carolina agreed to buy all the deposits and loans of Silicon Valley Bridge Bank.
During a March 28 hearing held by the Senate Committee on Banking, Housing, and Urban Affairs, Sen. Tim Scott (R-S.C.) criticized banking regulators for not acting more quickly to approve other banks’ bids for SVB.
Scott said if the purchases had been approved, “The panic and the shock to the market and to market confidence we’ve seen … may have been avoided.”
Hill said the rapid loss in value of Silicon Valley Bridge Bank on March 13, its first day open under FDIC control, underscored “a critical lesson for regional bank resolutions: once the bank fails, the government must be proactive in finding an acquirer as quickly as possible.”
“The SVB failure also reinforces the importance of a bank’s capability to quickly populate a data room so that potential bidders can perform due diligence,” he said. “One obstacle to a quick sale of SVB was the time it took to meaningfully stand up such a platform.”
Hill said the FDIC has discussed data rooms as part of insured depository institution resolution planning, including in a 2021 policy statement and subsequent FAQs, but that “capabilities testing around this seems a worthwhile area of focus going forward.”
In 2020, the FDIC initiated a program aimed at developing technologies to provide more granular and frequent data on a bank’s financial condition to the agency. Had the program, which was discontinued, been in place, it would have made it easier for SVB to populate a data room and given the FDIC access “to much higher quality data to monitor broader trends, such as deposit flows in times of stress,” said Hill.
Another hindrance to rapid sales of failed banks is an institution’s inability to “immediately produce a list of key employees for the FDIC and to ensure those employees remain in their positions post-failure,” he said, both to facilitate marketing of the failed bank and to help with due diligence.
One factor that was not to blame for the collapse of SVB, Hill said, was the 2018 regulatory changes that reduced stress testing and other requirements for regional banks.
“The reasons for SVB’s failure are quite straightforward and easy to explain, and those rule changes had nothing to do with them,” he said. “When it comes to something like this, I encourage people to first look at the facts and then arrive at conclusions, rather than starting with a conclusion you hope to be true and grasping around for facts in support.”