Over dinner the other night a business man mentioned that he had large amounts on deposit in the nation’s banks and said words to the effect that there is no way the government will let those deposits which are various company operating accounts go “pfft.”
On that subject, while Silicon Valley Bank’s US deposits have been covered, SVB’s deposits in the Cayman Islands have gone “pfft ‘’ or to be more clear those depositors have become unsecured creditors in the SVB bankruptcy. The bank’s foreign deposits totaled $13.9 billion at the end of last year. “The branch in the offshore tax haven was set up to primarily support the bank’s activities in Asia, according to SVB. Its depositors, which include multiple Chinese investment firms, haven’t been able to access their funds—and have been in limbo since SVB’s collapse,” reports the Wall Street Journal’s Frances Yoon.
Depositors are more than surprised, after all the Federal Reserve Board made a statement after the SVB failure, “After receiving a recommendation from the boards of the FDIC and the Federal Reserve, and consulting with the President, Secretary Yellen approved actions enabling the FDIC to complete its resolution of Silicon Valley Bank, Santa Clara, California, in a manner that ”fully protects all depositors.” (emphasis added)
A spokesperson for Phoenix Property Investors, a Hong Kong-based private-equity firm that had funds in SVB’s Cayman Islands branch told the WSJ “We feel misled and are now doing what we can to recover our deposits.”
Now it’s worse than being misled. Those same deposit customers who have loans outstanding are being told to pay up by loan purchaser First Citizen Bank. Ms. Yoon and Serena Ng write in the WSJ, “Some of those same venture-capital and private-equity funds had previously drawn on credit lines that were linked to their SVB deposit accounts. Their outstanding loans were among the assets that were sold to First Citizens, customers of the bank told the Journal.”
These credit lines are short-term and venture firms planned on paying off those loans with those Cayman deposits that are, for the moment, “pfft.” Customers have reasonably asked First Citizens if their loans can be set off with the deposits that the funds had in their Cayman bank accounts. A First Citizens spokeswoman said a setoff “isn’t legally possible in this situation” because First Citizens owns the capital-call lines while the Cayman deposits were with SVB Financial Group, the former holding company of Silicon Valley Bank, reports the WSJ.
Sounding just like an acquiring bank, First Citizens said requests for additional credit-line increases will no longer be approved by First Citizens. “First Citizens did not retain a banking presence in Asia, which is the basis for the decision on credit line increases,” a spokeswoman for the Raleigh, N.C.-based bank said very banker-like. Bankers alway have an excuse.
The FDIC can decide what deposits live and which ones die. For now, the deposit insurer has told SVB’s Cayman depositors they can file unsecured claims in the bankruptcy by July 10. The receiver (FDIC) has up to 180 days to determine whether to allow the claims, according to a notice sent by one of SVB’s customers to its investors.
Murray Rothbard wrote in The Case Against The Fed, “the Roosevelt Administration unsurprisingly went in the opposite direction: plunging into massive fraud upon the American public by claiming to rescue the nation from unsound banking through the new Federal Deposit Insurance Corporation (FDIC). The FDIC, the Administration proclaimed, had now ‘insured’ all bank depositors against losses, thereby propping up the banking system by a massive bailout guaranteed in advance. But, of course, it’s all done with smoke and mirrors.”
Some depositors get the smoke and some get the mirrors.
