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U.S. FDIC weighs backstop on bank auctions to attract smaller peers

© 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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