Despite the collapse of Silicon Valley Bank (SVB), the regulatory response has been swift and decisive, with the FDIC creating the Deposit Insurance National Bank of Santa Clara to protect all depositors, both insured and uninsured, through a "systemic risk exception." This move demonstrates the government's commitment to stabilizing the loan market and preventing a domino effect of bank failures. Furthermore, the establishment of a bridge bank, led by former Fannie Mae CEO Tim Mayopoulos, ensures that SVB's business will continue with a "business as usual" approach, and the FDIC expects all contracts entered into with SVB to be performed by counterparties.
Additionally, the Bank Term Funding Program (BTFP) will offer loans of up to one year in length to banks pledging qualifying assets as collateral, providing an additional source of liquidity against high-quality securities and eliminating a bank's need to quickly sell those securities in times of stress.
Furthermore, the MCAPs' Defaulting Lender Language (DLL) was examined, which sets out the trigger for SVB becoming a "defaulting lender" when SVB went into receivership. However, the FDI Act has provisions in place to ensure that ipso facto consequences set out in a credit agreement, which would otherwise apply, are ineffective. Therefore, the establishment of the SVB bridge bank does not make it a defaulting lender, and the MCAPs' reallocation of participations will not arise in this situation.
Overall, while the collapse of SVB may have caused initial concern in the loan market, the regulatory response has been robust and reassuring, demonstrating a commitment to stabilizing the market and protecting depositors. The establishment of a bridge bank and the Bank Term Funding Program will provide the necessary support to prevent a systemic crisis in the loan market.