How the FDIC Rigged the SVB Auction

The agency snubbed nonbank bidders, which cost taxpayers more

WSJ editorial. Excerpts:

"the Federal Deposit Insurance Corp. snubbed nonbanks interested in buying SVB, resulting in increased costs to the insurance fund.

FDIC Chairman Martin Gruenberg told Congress last month that the agency received a valid bid to acquire SVB the weekend after it failed on Friday, March 10. But he said the bid didn’t meet the FDIC’s statutory requirement to minimize costs to the deposit insurance fund because losses on SVB’s insured deposits were likely to be very small. The bid, he added, “was more expensive than a liquidation” would have been.

Yet, lo, on March 12 the FDIC invoked a “systemic risk” exception to its least-cost resolution requirement and guaranteed SVB’s uninsured deposits."

"the FDIC placed nonbanks on an unequal playing field. 

The FDIC offered banks—but not nonbanks—a loss-share arrangement" 

"A loss-share arrangement reduced the due diligence potential acquirers had to perform to evaluate SVB’s hard-to-value loan book"

"The FDIC also offered banks—but again not nonbanks—cheap financing."

"several nonbanks made competitive bids, but they needed more time to raise money and perform due diligence. Blackstone, for one, backed a bid by regional bank Valley National Bancorp.

The FDIC insisted on closing a deal by the end of March 26, and its refusal to offer nonbanks the same terms as banks put alternative investment firms at a significant disadvantage."