FDIC Reportedly Sweetening the Deal for Failed Banks

Federal regulators are reportedly sweetening the deal for two failed banks.

The Federal Deposit Insurance Corporation (FDIC) is open to negotiating sharing losses if that speeds the sales of Silicon Valley Bank and Signature Bank, the Financial Times (FT) reported Friday (March 17), citing unnamed sources.

Reached by PYMNTS, an FDIC spokesperson declined to comment on the report.

The regulator had previously ruled out sharing losses but is now open to it after it attempted to auction Silicon Valley Bank last weekend drew only one bidder — and no one from inside the banking sector — and an offer that the FDIC rejected, according to the report.

The FDIC commonly offers loss-sharing agreements in sales. Still, the regulator was criticized for some of the deals it made after the 2008 financial crisis. It is concerned that making such an offer with these sales will lead to accusations that its bank rescues are actually bailouts, the report said.

The Wall Street Journal (WSJ) reported Monday (March 13) that the FDIC planned to try again to sell Silicon Valley Bank after failing to find a buyer in the auction.

FDIC officials told Senate Republicans that now that regulators have said that a failure of the bank would be a threat to the entire financial system — a determination that enabled the FDIC to cover all depositors, including those who were uninsured — the FDIC can also offer additional incentives to potential buyers, according to the WSJ report.

The auction aimed to raise enough money to repay Silicon Valley Bank’s depositors after one of the largest banking failures in U.S. history.

On that same day, the Financial Times (FT) reported that a group of venture capital firms — including Andreessen Horowitz, General Catalyst and Khosla Ventures — were working to reclaim parts of Silicon Valley Bank.

A day later, on Tuesday (March 14), The Information reported that Apollo Global Management was asking for backing for its bid to buy the bank.

However, the FDIC reportedly prefers to sell it to another bank. That would make the transition smoother for customers and ensure that the buyer meets the regulatory requirements, The Information reported Wednesday (March 15).