See the below article where Rick Levine was quoted in Lawyers Weekly regarding the Silicon Valley Bank collapse.
In the case of Signature, the FDIC was successful, entering into an agreement under which Flagstar Bank assumed almost all of Signature’s deposits and purchased $12.9 billion of Signature’s loans, though approximately $60 billion in Signature’s loans remain in the receivership for later disposition by the FDIC.
The FDIC has been less successful in finding a buyer for Silicon Valley Bank. It recently extended the bidding process and said it would allow parties to submit separate bids for Silicon Valley Bridge Bank, N.A., and its subsidiary Silicon Valley Private Bank by March 24 and March 22, respectively.
But one way or the other, companies that had borrowed from either bank may soon find themselves in relationships with new institutions. Those new relationships may turn out to be quite different from the ones that they had gotten used to, warns bankruptcy attorney Richard L. Levine of Sassoon Cymrot in Boston.
For one thing, formerly simple requests may fall by the wayside, if the new bank’s officers want to operate “by the book,” he noted.
Moreover, the new bank may be less enthusiastic about a new customer’s industry than its predecessor.
“In fact, within a short time, it may decide to exit acting as a lender in your industry, or exit acting as a lender to borrowers in your particular financial profile — leaving you without an assured lender,” Levine said.
The lesson is simple: Have a Plan B, he said.
“Remember, the new bank bought an entire bank, so your piece of the portfolio — although important to you — may not be so important to the new bank,” he said.
The new bank may also be less inclined to accommodate requests for overdraft protections or temporary relief from financial formulas, “and you may only learn of its reluctance at the last minute,” he said.
But a relationship with a new bank also brings with it the loss of a range of legal defenses, thanks to a 1942 Supreme Court case and subsequent act of Congress, Levine noted.
Continued…
The federal government may have rescued depositors of the failed Silicon Valley and Signature banks, but Massachusetts attorneys who have spent every waking hour of the past two-plus weeks responding to the concerns of anxious clients do not expect their phones to stop ringing anytime soon.
“This is going to affect all of us in myriad ways over a lengthy period of time, and not just the skirmishes that we’re seeing at the moment,” said David M. Bizar, part of Seyfarth Shaw’s “cross-disciplinary, rapid-reaction” task force assembled in response to the country’s most significant financial crisis since 2008.
Those who may have individual accounts that exceed FDIC insurance limits at other banks are now pondering whether their money is safe, a question that has an added wrinkle for corporate leaders, the Boston and Houston lawyer noted.
“In order to take advantage of the business judgment rule, you have to consider what’s ‘considerable,’” Bizar said.
What’s “considerable” now includes a Social Science Research Network study released on March 13 that identifies dozens of other U.S. banks that could be vulnerable to bank runs because they, too, have a significant portion of their assets in financial instruments that are sensitive to the Federal Reserve’s interest rate hikes, such as government bonds and mortgage-backed securities.
