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Pam and Russ Martens: FDIC seizure of foreign deposits at SVB opens Pandora's box at JPM and Citi

Section: Daily Dispatches

By Pam and Russ Martens
Wall Street on Parade
Monday, May 15, 2023

If you have been following the banking crisis, you have likely read at least a dozen times that on March 12 federal banking regulators, with the consent of the U.S. Treasury Secretary Janet Yellen, invoked the "systemic risk exception" in order to protect both insured and uninsured depositors at the two banks that failed in March -- Silicon Valley Bank and Signature Bank.

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That's why there were gasps of shock on Saturday evening at around 5:30 p.m. when the Wall Street Journal published the stunning news that depositors in the Cayman Islands branch of Silicon Valley Bank had their deposits seized by the Federal Deposit Insurance Corp., which they are unlikely to see again.

As Wall Street On Parade has previously reported, under statute, the FDIC cannot insure deposits held on foreign soil by U.S. banks. What it can do, however, is to sell those deposits to the bank that acquires the collapsed bank. 

In the case of Silicon Valley Bank, the acquiring bank was First Citizens Bancshares, which apparently declined to purchase the foreign deposits in the secrecy jurisdiction of the Cayman Islands, a jurisdiction most notable recently for housing Sam Bankman-Fried's crypto house of frauds.

The Journal reported that as of December 31, 2022, Silicon Valley Bank held $13.9 billion in foreign deposits with an unknown amount remaining as of the date of its failure and FDIC receivership on March 10. 

The Journal also reported that "On March 31, the FDIC notified SVB's Cayman Islands depositors that they wouldn't be covered by its deposit insurance and that they would be treated as 'general unsecured creditors,' according to documents reviewed by the Journal as well as interviews with employees of multiple firms."

Adding to what is certain to be political fallout, the depositors left out in the cold in the Cayman Islands branch included "investment firms in China and other parts of Asia." Those depositors can't be too happy to see their deposits seized while everyone else gets protected, whether they had deposit insurance or not. ...

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