The US Federal Deposit and Insurance Corporation (FDIC) has approved North Carolina-based First Citizens Bank's takeover of all loans and deposits from the failed Silicon Valley Bank (SVB). All 17 branches of the institution that triggered the global banking crisis in March opened as First Citizens Bank and Trust Company on Monday, and customers have been automatically transferred with their deposits.

Silicon Valley Bank Acquired by First Citizens Bank

Following the closure of Silicon Valley Bank by the California Department of Financial Protection and Innovation, the FDIC established Silicon Valley Bridge Bank, National Association, to stabilize the institution and market the franchise.

The FDIC projects that the collapse of Silicon Valley Bank will incur a cost of around $20 billion for its Deposit Insurance Fund (DIF). The precise amount will be ascertained once the FDIC concludes the receivership process.

As of 10 March 2023, SVB had approximately $167 billion in total assets and around $119 billion in total deposits. The acquisition included the purchase of about $72 billion of the bank's assets at a $16.5 billion discount. The FDIC will dispose of the remaining $90 billion in securities and other assets in the receivership. Moreover, the FDIC received equity appreciation rights in First Citizens BancShares, Inc., with a potential value of up to $500 million.

A loss-share transaction was agreed upon between the FDIC and First-Citizens Bank & Trust Company for commercial loans purchased from the former Silicon Valley Bridge Bank. Both parties will share losses and potential recoveries on loans covered by the loss-share agreement. This arrangement is expected to maximize asset recoveries by maintaining them in the private sector, minimize disruptions for loan customers, and allow First-Citizens Bank & Trust Company to assume all loan-related Qualified Financial Contracts.

Last week, SVB was given the go-ahead last week to resume normal operations in Germany after establishing a new local branch.

From SVB to Credit Suisse and Deutsche Bank

Although the situation surrounding SVB is beginning to stabilize and the bank is returning to normal operations, its closure sent a wave of immense concern through the market and led to instability in the banking sector.

This resulted in a record slump in Swiss lending giant Credit Suisse shares, which UBS subsequently acquired in a transaction worth CHF 3 billion. UBS agreed to take on $5.4 billion in losses generated by the troubled institution.

Just when it seemed that the crisis might end, alarming news began to emerge from Deutsche Bank last Friday with its shares on the German stock exchange falling by 15% and testing the EUR 8 level, which is the lowest since October and the strongest since the first days of panic due to the pandemic in 2020.

The move took place after the publication of information that the lender plans to repurchase debt, which is usually seen as a sign of market strength.

Therefore, analysts had a significant problem explaining the discount, and according to Citigroup, it was irrational.