Silicon Valley bank customers in Asia were not protected by the US bank deposit regulator after the bank collapsed in March – which means those customers are still required to repay loans to its new owner First Citizen Bank, a bank Wall Street Journal reported on Monday, as the fallout from the crisis continues.
Last March, a bank run and ill-fated efforts to sell US Treasuries led to the collapse of SVB Bank and its seizure by federal regulators.
After this collapse, the FDIC stepped in to ensure that all deposits of SVB customers in the US were protected before SVB accounts, subsidiaries and loans were sold to First Citizens Bank.
However, this protection did not extend to the bank’s customers in China, Singapore and other parts of Asia who have deposits at SVB’s branch in the Cayman Islands, according to magazine.
Now, those Asian customers, who lost their deposits during the crash, still have to repay the loans to First Citizen Bank, which took out the loans while the FDIC was cleaning up the crash.
Customers say to magazine That the money meant to pay off those loans was in bank accounts that were lost in the crash.
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How will this be settled. Customers are reportedly under pressure to make payments on these short-term loans. Some affected customers have asked First Citizens Bank if they can clear their loans through deposits from their bank accounts in the Cayman Islands, according to magazine. However, First Citizen Bank reportedly said to magazine This would not be legally possible because the bank only owns the lines of credit. The Cayman Islands deposits were in SVB’s former holding company, SVB Financial Group. First Citizens Bank has reportedly told customers it is open to giving them more time to pay off debts. According to magazine.
The SVB collapse was the third largest in US history. It was soon followed by two other bank collapses, First Republic Bank and Signature Bank, which are the second and fourth largest in US history, respectively, according to Rhe The New York Times. This rapid succession of major crashes has generated fears – so far unfulfilled – of a large-scale banking crisis reminiscent of the one that led to the Great Recession in 2008.
SVB clients who lost their deposits remain on the hook for loans (WSJ)
Fed weighs in on Silicon Valley bank collapse (Forbes)
How to protect your business from the repercussions of bank failure (Forbes)