Deal for failed Silicon Valley carries record estimated cost to FDIC at $20B

First Citizens BancShares Inc.'s purchase and assumption agreement for certain assets and liabilities of Silicon Valley Bridge Bank NA is the government-assisted deal with the largest-ever estimated cost to the Federal Deposit Insurance Corp.

The estimated cost of the Raleigh, NC-based bank's acquisition of the failed bank to the FDIC is $20.00 billion, which represents 11.98% of the Silicon Valley Bridge Bank's assets, according to an S&P Global Market Intelligence analysis.

First Citizens acquired $110.08 billion in total assets and $56.49 billion in deposits, which resulted in a discount of $16.45 billion on the assets assumed.

Before agreeing on a deal with First Citizens, the FDIC received substantial interest from multiple parties. However, the agency determined that it required additional time to "explore all options in order to maximize value and achieve the optimal outcome," FDIC Chairman Martin Gruenberg said in March 28 testimony.

The agency received 27 bids from 18 bidders, including bids under the whole-bank, private bank and asset portfolio options.

The purchase and assumption agreement for parts of Silicon Valley Bridge Bank, which was created following the failure of Silicon Valley Bank, eclipsed the previous high of IndyMac Federal Bank F.S.B.'s acquisition by IMB Management Holdings LP in 2009. The IndyMac acquisition's estimated cost to the regulator was $12.44 billion, which was 52.93% of the bank's total assets — the highest in the analysis.

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New York Community Bancorp Inc.'s purchase and assumption agreement for certain assets and liabilities of Signature Bridge Bank NA also has a hefty price tag for the FDIC.

The estimated cost of resolving Signature Bank's failure to the FDIC is $2.50 billion, which represents 2.27% of the failed bank's assets, and New York Community Bank got a discount of $2.70 billion on the assets assumed.

Gruenberg said that roughly 88% of the estimated loss for the Silicon Valley Bank failure is attributable to covering uninsured deposits. For Signature Bank, the percentage is approximately two-thirds.

Largest failed banks

Silicon Valley Bank and Signature Bank are the second- and third-largest US bank failures, respectively.

Silicon Valley Bank had $209.03 billion in total assets and $175.38 billion in deposits, while Signature Bank had $110.36 billion in total assets and $88.61 billion in deposits.

The combination of "high level" longer tenure asset maturities and a "moderate decline" in total deposits underscored the risk of unrealized losses becoming actual losses in the event of banks selling securities to meet liquidity needs, Gruenberg highlighted in his testimony.

The failure of Silicon Valley Bank and the resulting systemic stress on the banking systems was driven by the underscored risk of losses combined with the other prevailing conditions, Gruenberg said.

The failure of Washington Mutual Bank in 2008 remains the largest US bank failure since 1998. The bank had $307.02 billion in total assets and $188.26 billion in deposits. Following its failure, Washington Mutual Bank was acquired by JPMorgan Chase & Co.