SVB sale puts too-big-to-fail risk in a new bottle

Silicon Valley Bank location in San Francisco
An employee holds the door open at the Silicon Valley Bank branch office in downtown San Francisco, California, U.S., March 13, 2023. REUTERS/Kori Suzuki/File Photo

NEW YORK, March 27 (Reuters Breakingviews) - The failure of Silicon Valley Bank held two lessons. One is that when a bank wobbles, depositors who aren’t fully protected by government insurance can turn tail in a heartbeat. The other is that financial watchdogs aren’t great at keeping tabs on banks that grow at exaggerated speed. The sale of SVB to rival First Citizens Bancshares (FCNCA.O) addresses the first part, and doubles down on the second.

First Citizens snapped up $110 billion of SVB’s assets over the weekend, at a generous $16.5 billion discount to book value. The family-controlled North Carolina-based lender’s market value promptly ballooned by nearly $4 billion on Monday morning. It’s easy to see why. Regulators are normally averse to mergers between banks: First Citizens’ takeover of rival CIT spent more than a year under scrutiny until it closed in January 2022. And for the Federal Deposit Insurance Corp, which is handling SVB’s sale, First Citizens chief Frank Holding is a known quantity. His bank has acquired at least 15 failed lenders since 2009, according to the watchdog’s database.

Bank rescues involve making difficult choices under duress, as Swiss watchdogs showed when they bent the rules to let UBS (UBSG.S) buy Credit Suisse (CSGN.S) a week ago. In SVB’s case, the FDIC has agreed to absorb some potential losses in the failed bank’s loan book. But the bigger sacrifice is that authorities are letting the buyer go from small to enormous. Buying CIT doubled First Citizen’s assets; swallowing SVB doubles them again, to $219 billion. Holding is now knee-deep in businesses his bank barely touched before, like lending to venture capital funds.

That might be fine, if regulators hadn’t already shown they struggle to keep tabs on banks that expand in a hurry. First Citizens will skate just below the $250 billion asset threshold that triggers more onerous supervision, a line Holding says he doesn’t intend to cross. Yet regulators including the Federal Reserve still haven't explained how they let SVB, once as big as First Citizens is now, go so wrong. Supervisory tsar Michael Barr said on Monday in a statement to Congress that tailoring of rules for banks based on size is part of an ongoing review.

Those are tomorrow’s problems. For now, the regulators have managed to find a solution for SVB that doesn’t entail dismantling it piecemeal, and avoids letting the really-big banks, like JPMorgan (JPM.N) and Bank of America (BAC.N), get any bigger. That would have been politically difficult. The risk is that this solution repackages too-big-to-fail risk, rather than eliminating it.

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(The author is a Reuters Breakingviews columnist. The opinions expressed are his own.)


First Citizens Bancshares acquired $72 billion of loans and $56 billion of deposits from failed lender Silicon Valley Bank, the Federal Deposit Insurance Corporation announced on March 26.

The buyer picked up a total of $110 billion in assets, at a discount of $16.5 billion. The FDIC expects its fund for managing failed banks will take a $20 billion hit.

A week earlier, New York Community Bancorp acquired $34 billion of deposits from another failed lender, Signature Bank, in a deal that the FDIC estimated would cost its fund $2.5 billion.

SVB was taken into receivership on March 10, two days after it said it was raising $1.8 billion in equity to shore up its balance sheet.

First Citizens shares were up 49% at $866 as of 1600 GMT on March 27.

Editing by Peter Thal Larsen, Sharon Lam and Amanda Gomez

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