FDIC Says Bridge Banks Must Meet Obligations of Failed Banks

In a Financial Institution Letter, the FDIC told counterparties and service providers to the recently failed Silicon Valley Bank, N.A. and Signature Bank, N.A. that (i) they remain obligated to the successor bridge banks of the two failed banks and (ii) they must meet their contractual obligations to the bridge banks.

According to the FDIC, this requirement holds for all contracts that the two banks entered into prior to their failure as "the bridge is obligated to and has the full ability to make timely payments to vendors and counterparties and otherwise perform its obligations under the contract."

The FDIC stated that:

• vendors providing services should continue their services;
• authorized signers, and all account pre-failure processes remain in effect and should be used to provide such services until such time as the bridge banks provide notification to the parties;
• vendors and counterparties should know that the FDIC as receiver is "authorized to enforce such contracts under 12 USC 1821(e)(13) ['Provisions relating to contracts entered into before appointment of conservator or receiver'] to transfer the contract notwithstanding any apparent limits on transfer in the contract (12 USC 1821(d)(2) ['Powers and duties of Corporation as conservator or receiver']".
• vendors and counterparties are legally obligated to continue to perform under their contracts and the bridge banks are obligated to make timely payments to vendors and counterparties and perform all of their obligations under the contract;
• all obligations of the bridge banks are backed by the FDIC and the "full faith and credit of the U.S. government"; and
• failure of vendors or counterparties to meet these obligations can result in legal action by the U.S. government.