Summary
The past four days have been a roller coaster for many investors; the events of Friday, March 10, that saw the largest failure of a bank since 2008, have put many on edge. On Sunday, the Fed, Treasury, and FDIC moved to protect uninsured depositors of Silicon Valley Bank. In this follow-up to our previous FAQ on the topic, below we discuss the further practical realities and questions regarding SVB’s receivership.
The Bottom Line
If you have what you think is a qualified financial contract with Silicon Valley Bank and want to learn more about your default rights, please call the Derivatives, Structured Products, and Secondary Markets team at Ballard Spahr.
The past four days have been a roller coaster for many investors; the events of Friday, March 10, that saw the largest failure of a bank since 2008, have put many on edge. On Sunday, the Fed, Treasury, and FDIC moved to protect uninsured depositors of Silicon Valley Bank. In this follow-up to our previous FAQ on the topic, below we discuss the further practical realities and questions regarding SVB’s receivership.
I have an interest rate swap or foreign exchange trade with SVB, can I terminate it?
Upon appointment of the FDIC as receiver, your right to terminate any qualified financial contract due to the appointment of the receiver was initially stayed for one business day and then permanently stayed as the qualified financial contracts (QFCs) were transferred to a bridge bank (Silicon Valley Bridge Bank, N.A.). On March 13, 2023, the FDIC provided the following notice: “The receiver for Silicon Valley Bank has also transferred all Qualified Financial Contracts (as defined in 12 USC 1821(e)) of the failed bank to the bridge bank.”
Does this mean that I can never terminate my QFC now with the bridge bank?
Termination on grounds other than the appointment of a receiver or transfer to the bridge bank have not been stayed. For example, if the bridge bank were to miss a payment and the cure period were to expire you could terminate the qualified financial contract.
I thought that Silicon Valley Bank was not big enough to qualify for treatment under the QFC rule. Why am I subject to the rule now?
Silicon Valley Bank was designated a significant bank by special procedure on Sunday, March 12, 2023. This designation brought the bank in scope for the QFC rule.
Other than swaps and certain foreign exchange transactions, what other types of agreements are covered by the QFC rule stay?
The definition of qualified financial contracts is very broad and includes, among other things, swaps and forward foreign exchange, futures contracts, repurchase transactions, stock loans, forward securities purchases or sales, certificates of deposit and mortgages, forward commodity trades and guarantees or credit enhancements of the those transactions.
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