In March, the FDIC seized nearly $14 billion in foreign deposits at Silicon Valley Bank, most of which were from Asia. Foreign depositors have been waiting for access to their money. The FDIC now affirms, sorry, too bad. Two months after the failure of Silicon Valley Bank, the lender’s depositors in the Cayman Islands have been left out in the cold.
The California-based bank’s American depositors were protected when the Federal Deposit Insurance Corp. took control of SVB on March 10 and guaranteed all their funds. SVB’s U.S. branches, as well as its loans and deposits, were acquired by First Citizens Bancshares in late March.
It has been a vastly different story for customers of SVB’s Cayman Islands branch, which was left out of the First Citizens deal and placed under FDIC receivership. The branch in the offshore tax haven was set up to primarily support the bank’s activities in Asia, according to SVB. Its depositors, which include multiple Chinese investment firms, haven’t been able to access their funds—and have been in limbo since SVB’s collapse. The FDIC’s notice surprised customers who had thought an earlier statement from U.S. regulators that said all SVB depositors would be made whole also applied to them.
The FDIC made a “systemic risk exception” for SVB to protect depositor funds beyond its limit of $250,000 per bank account. Their stated “insurance” is for US depositors only. But the exception to make all US depositors whole means foreign depositors bear 100% of the responsibility for the collapse of SVB. Since bondholders rate higher than unsecured depositors, and the FDIC had significant losses rated to SVB, foreign depositors may get zero cents on the dollar.
The clear message by the FDIC is don’t bank in the US. If you do, it better be at one of the giants too big to fail banks. If you are a foreign depositor at any small or midsized bank, the FDIC is affirming that you better get your money out now. Let the foreign deposit run begin.
