The Silicon Valley Bank’s (SVB) tumultuous journey takes a new twist as its Cayman Islands unit files for Chapter 15 protection in New York. The move, unveiled in late Thursday court filings, aims to unlock critical information from federal regulators regarding the fate of its deposits in the aftermath of SVB’s catastrophic collapse in 2023.
SVB Cayman Unit Files For Bankruptcy : Orphaned by SVB Collapse
In a perplexing turn of events, SVB Cayman found itself orphaned after the collapse of SVB last March. The Cayman Islands unit, which initiated insolvency proceedings in its homeland last year, was left adrift as the Federal Deposit Insurance Corp. (FDIC) failed to extend its protective umbrella over the deposit accounts.
Michael Pearson, a court-appointed joint provisional liquidator of SVB Cayman, likened the unit to an abandoned child, recounting how FDIC neglected to take it under administration when SVB faced its demise. Shockingly, SVB Cayman wasn’t even part of the SVB sale to First Citizens Bank & Trust Co., leaving it in financial limbo.
Uncovered by FDIC Insurance
The intricate interbank agreements turned into a financial quagmire for SVB Cayman. Deposits made at SVB Cayman were swept into SVB accounts, but the accounts, crucially, lacked FDIC insurance. A proof of claim made by SVB Cayman in the SVB receivership case was disallowed in December, prompting urgent legal action within a 60-day window.
SVB Cayman Unit Files For Bankruptcy : Chapter 15 Gambit
The Cayman Islands unit, in a burst of legal maneuvers, filed a Chapter 15 petition. The objective is twofold: gain recognition for the Cayman Islands insolvency case and empower the joint provisional liquidators to delve into the FDIC’s documents. The court filings assert that this discovery is essential to unravel the mysteries surrounding SVB Cayman’s assets and rights.
Silicon Valley Bank’s Catastrophic Fall
Silicon Valley Bank’s collapse last March marked a seismic event in the financial landscape. Liquidating investments, including U.S. Treasury bonds, to cover deposit liabilities triggered a bank run, draining billions of dollars and prompting a state takeover. The FDIC, stepping in as the receiver, transferred assets to a bridge bank before selling them to First Citizens.
SVB Cayman Unit Files For Bankruptcy : Chapter 11 Aftermath
In the wake of the collapse, SVB Financial, SVB’s parent company, sought refuge under Chapter 11 protection. The move was a strategic bid to reclaim access to billions allegedly seized unlawfully by the FDIC.
