Cayman depositors left in the cold after Silicon Valley Bank collapse

(CMR) The collapse of Silicon Valley Bank two months ago is being felt by depositors at its Cayman Islands branch as their funds have reportedly been seized by the Federal Deposit Insurance Corp (FDIC).

According to a report by Wall Street Journal, American depositors were protected when the Federal Deposit Insurance Corp. took control of the California-based bank on March 10 and were guaranteed all their funds.

However, WSJ explained that “it has been a vastly different story for customers of SVB’s Cayman Islands branch, which was left out of the First Citizens deal and placed under FDIC receivership. “

On March 31, the FDIC reportedly notified SVB’s Cayman Islands depositors that they wouldn’t be covered by its deposit insurance and that they would be treated as “general unsecured creditors.” FDIC said that only domestic deposits are covered by its insurance under the Federal Deposit Insurance Act.

The FDIC’s notice surprised customers who had thought an earlier statement from U.S. regulators that said all SVB depositors would be made whole also applied to them, according to WSJ.

According to the report, the Cayman Islands branch was set up to primarily support the bank’s activities in Asia, and depositors, which include multiple Chinese investment firms, haven’t been able to access their funds since SVB’s collapse.

It is unknown how much in deposits the Cayman Islands branch had at the time of SVB’s failure. However, the bank's last annual report said the bank had $13.9 billion in foreign deposits at the end of 2022 that were not subject to any U.S. federal or state deposit insurance.

SVB also had a bank subsidiary in the U.K. and branches in Germany and Canada. The German and Canadian branches didn’t take deposits; they only made loans. Its U.K. bank, which HSBC has taken over, had about $8.5 billion in deposits on March 10 of this year.

Following the failure of Silicon Valley Bank (“SVB”) and the appointment of the Federal Deposit Insurance Corporation as the Receiver in March, the Cayman Islands Monetary Authority said it was engaging with the FDIC and other stakeholders regarding the receivership process and impact on SVB’s Cayman Islands branch.

A Cayman Islands Monetary Authority representative told WSJ the regulator is still assessing the situation.

A spokesperson for Phoenix Property Investors, a Hong Kong-based private-equity firm that had funds in SVB’s Cayman Islands branch, told WSJ, “When the FDIC announced they would insure unsecured deposits, it seemed that they would include all deposits, including ours.”

Employees of other investment firms that had deposits at SVB’s Cayman Islands branch also told WSJ that following the bank’s failure, they received notices reassuring customers that they would have full access to their money and that transactions were being processed.

Instead, their bank statements at the end of the month showed their balances were at zero and that their funds had been transferred to “SVB Receiver.”

Uninsured depositors are expected to be paid based on assets available in the receivership estate to pay claims; however, one lawyer explained that as the FDIC liquidates assets, there may not be sufficient assets available to satisfy all claims. This means foreign depositors may recover little or nothing.