Saturday March 11, 2023; 6 PM PST
We at Klaros have received numerous inquiries today from VCs and portfolio companies with concerns about the FDIC’s treatment of accounts on deposit at the receivership formerly known as Silicon Valley Bank. We have considerable experience with receivership situations and the rules of deposit insurance coverage, but it’s been a while since we’ve needed to draw on it.
As a service to our clients and others struggling through this difficult time, we thought it might be helpful to compile some basic information for companies attempting to sort out deposit insurance coverage issues in the aftermath of the SVB failure. These resources should provide a useful starting point for many, but we recognize that they won’t answer every question. Importantly, they do not constitute legal advice. This post is timestamped and we will update it if appropriate.
The FDIC’s press release states that the agency has moved insured SVB balances to a new bank (Deposit Insurance National Bank of Santa Clara). We expect that bank to open for business Monday morning and further expect SVB deposit customers to be able to conduct business operations as normal - but only to the extent of their insured deposit balances, even though those balances may not suffice for many companies’ most pressing operational needs, including mid-month payroll.
Uninsured balances remain with the FDIC, operating as receiver for SVB. The FDIC’s release indicates that it will, as it has in past receiverships, provide an advance distribution on uninsured balances within a week from the date of receivership. While the FDIC has not yet determined the amount of that distribution, we are confident they are working hard to maximize it.
The FDIC’s landing page for receivership information contains useful information for SVB customers. The FDIC will update this page with new information as it becomes available
The initial press release encourages all depositors with balances in excess of $250,000 to call the FDIC directly at 1-866-799-0959. Getting through may be a challenge, but it’s an important step.
You can find the regulations governing receivership operations at 12 CFR Part 360.
For basic rules of deposit insurance coverage, see the Financial Institution’s Guide to Deposit Insurance Coverage.
We are hearing a lot of questions in particular concerning pass-through deposit insurance and coverage of FBO accounts, and have spoken with holders of several FBO accounts who are trying to determine what information the FDIC needs - and how to provide it - in order to determine insurance coverage of their accounts at the time of receivership.
For a coherent explanation of the basic framework for pass-through deposit insurance, see the FDIC’s Advanced Topics in Deposit Insurance Coverage.
The FAQs that briefly appeared on the FDIC website today before being taken down were silent on the process for claiming FBO account pass through insurance. In the absence of further guidance, we believe the Deposit Broker’s Processing Guide provides the most useful guidance:
Section IV details account documentation requirements necessary to determine deposit insurance coverage.
Section V spells out the file format in which the FDIC requires that documentation to be submitted.
We do not have confidence that the FDIC will consider FBO account holders to be deposit brokers. Even so, we would be surprised if the agency were to require different data fields and a different format from FBO account holders than it requires from holders of other deposit accounts eligible for pass through insurance. In any event, FBO account holders should gather the necessary information to ensure their customers have access to funds as quickly as possible.
As a final note, the FDIC aggregates deposit insurance coverage at the level of the account owner, not the individual account. Thus, for example, a customer who holds deposits in his or her individual capacity through multiple personal or FBO accounts at SVB will be insured only to an aggregate balance of $250,000. FBO agents should inform their customers of this possibility.
If you think our experience, perspective, or knowledge of agency process might be helpful to you, please feel free to reach out to us: firstname.lastname@example.org. As a fellow SVB customer, Klaros shares your pain. Every member of our senior team is monitoring the situation closely, in touch with many parts of the SVB ecosystem, and happy to help in any way possible.