© Reuters. FILE PHOTO: People gather outside of the Silicon Valley Bank (SVB) headquarters in Santa Clara, California, U.S. March 10, 2023. REUTERS/Nathan Frandino/File Photo
By Kanjyik Ghosh
(Reuters) -U.S. regulators are considering retaining ownership of securities owned by Signature Bank (NASDAQ:) and Silicon Valley Bank to allow smaller banks to participate in auction for the collapsed lenders, a source familiar with the matter said on Friday.
The move by Federal Deposit Insurance Corp (FDIC) is aimed at facilitating takeovers of the banks and to widen the pool of bidders, while ensuring that larger banks are not discouraged from bidding, the source said.
Many of the fixed income securities that SVB and Signature Bank invested in, such as Treasuries, have been worth less since the Federal Reserve raised interest rates. The FDIC retaining those securities would ensure that acquirers do not have to book a loss on them.
Signature Bank and Silicon Valley Bank did not immediately respond to Reuters requests for comment. The FDIC declined to comment.
Bloomberg News first reported the move on Friday and said that the amount covered at Signature could range from $20 billion to $50 billion, while for Silicon Valley Bank it could be between $60 billion and $120 billion.
Reuters on Wednesday reported that regulators at the FDIC have asked interested banks in acquiring SVB and Signature Bank to submit bids by March 17.
A weekend action launched by the FDIC to sell SVB failed last Sunday after major banks balked at carrying out such a risky deal in a short amount of time.
SVB Financial Group, the parent company of Silicon Valley Bank, earlier on Friday filed for a court-supervised reorganization under Chapter 11 bankruptcy protection.
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The United States Federal Deposit Insurance Corporation (FDIC) is weighing the possibility of offering a backstop to attract smaller peers during bank auctions. This measure is intended as a way to increase competition and attract more buyers to the bidding process.
The backstop would involve the FDIC offering to guarantee that the buyer of a bank would receive a minimum amount if they met certain criteria and the bidding went below the guarantee. This would help to create more competition in the marketplace, bring in new investors that may not otherwise participate, and potentially lead to higher prices being offered.
The FDIC has said that the current auction process is not as competitive as it could be and that more competition could lead to better prices for the buyers and therefore, lower costs for financial institutions. They also believe that offering this backstop could help smaller banks and credit unions that often have difficulty competing with larger institutions.
This measure is still in the early stages of development, and no official decision has been made by the FDIC. However, if approved, it could be the first of many moves to help create a more competitive landscape for the banking industry. In addition, the FDIC hopes that it will help to reduce consolidation in the banking sector, allowing for more healthy competition and potentially more competitive pricing.
Overall, this potential move by the FDIC is a positive one, and if it is officially approved, it could lead to a more competitive marketplace for banking institutions of all sizes.
