March 14, 2023
The recent closures of Silicon Valley Bank and Signature Bank—the second and third largest bank failures in U.S. history—have raised a myriad of questions amongst borrowers and other counterparties as to the contractual obligations and roles held by the two failed banks. On March 14, 2023, the FDIC released a statement clarifying how financial institutions and other counterparties of the failed banks should regard their obligations now that contracts have been transferred to the bridge banks. In addition, Silicon Valley Bridge Bank, N.A. (“SVBNA”) released a statement confirming, among other things, that all commitments to advance funds under existing credit agreements will be honored and that it will perform any other duties or roles under such agreements.
Following the placement of Silicon Valley Bank and Signature Bank into receivership, the FDIC announced that it had transferred all deposits and substantially all of the assets of the failed banks into two newly created, full-service bridge banks. SVBNA, the bridge bank for the former Silicon Valley Bank, and Signature Bridge Bank, N.A., the bridge bank for the former Signature Bank, have been formed to protect depositors and preserve the value of the assets and operations of the failed banks in order to improve recoveries. However, until today, it had not been clear whether and to what extent the bridge banks would honor the failed banks’ pre-closure contractual obligations, particularly funding requests under commitments that had been transferred by the FDIC. In addition, a number of questions have emerged over the last several days as to the rights and obligations of borrowers under existing contracts.
On March 14, 2023, the FDIC clarified that it had transferred all of the failed banks’ contracts to the bridge banks and that the bridge banks must meet their obligations under these contracts. In a financial institution letter titled “Financial Institutions are Required to Meet Contractual Obligations with Bridge Banks,” the FDIC states that:
On March 14, 2023, SVBNA released a statement (i) confirming that it had “fully stepped into the shoes” of the former Silicon Valley Bank and (ii) clarifying that:
Shearman & Sterling is closely monitoring the fast-moving and evolving developments surrounding the recent bank failures and related regulatory actions. This summary does not constitute legal advice, so please reach out to us with any questions regarding your particular situation.
 Bridge banks are created under U.S. federal law. While it was the “intent” of Congress that the FDIC, as the operator of a bridge bank, continue to honor commitments made by the failed bank to creditworthy borrowers, there is no explicit legal obligation for a bridge bank to fund loans. See 12 U.S.C. § 1821(n).