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First Citizens assumed deposits and purchased loans from Silicon Valley Bank over the weekend, transforming it into one of the nation’s leading banks. But it only selected a portion of the total assets of the failed bank, keeping it under the $250 billion threshold that would have triggered enhanced regulatory standards. That threshold, of course, was increased from $50 billion to $250 billion in the bipartisan financial deregulation law in 2018. The change enabled a number of regional banks to grow in size without facing additional regulatory scrutiny or compliance costs. The fact that First Citizens is buying only part of SVB’s assets, enabling it to remain below the radar for regulatory scrutiny, could renew calls for additional regulator attention on banks of this size.
First Citizens, a family-run institution founded in North Carolina in 1898, has purchased more than 20 rival banks since 2009, including a merger with CIT Group last year for $2.2 billion. Virtually no bank mergers have been denied over the past 20 years, making it easy to grow through acquisition. This latest deal with Silicon Valley Bank is more like an arranged marriage for First Citizens, however, and completely on their terms.
As of the end of 2022, First Citizens had $109 billion in consolidated assets on its balance sheet, according to the Federal Reserve. Upon its closure on March 10, Silicon Valley Bank had roughly $167 billion in assets. Combining that with First Citizens would have put the new bank over the $250 billion threshold. But First Citizens only purchased $72 billion of those assets—and at a discount of $16.5 billion, according to the Federal Deposit Insurance Corporation’s press release. That puts First Citizens at around $181 billion, well below the regulatory threshold. The Wall Street Journal put First Citizens’ assets slightly higher at $219 billion, but still under the $250 billion threshold. This is up from $42 billion just three years ago, the same meteoric rise that SVB experienced in the wake of the deregulation law.
Flagstar Bank, which purchased Signature Bank last week, also only bought a portion of Signature’s assets, keeping it well under $250 billion in asset size.
The transactions reinforce that the $250 billion threshold remains a consideration for banks wanting to grow but wary of stiffer regulations. The Federal Reserve is considering an overhaul of its supervisory rules, which would bring greater regulatory attention to large regional banks like First Citizens with between $100 billion and $250 billion in assets. Recent events have demonstrated systemic risk from banks of this size. Members of Congress have called for changes to these rules, and Fed vice chair for supervision Michael Barr reiterated his commitment to review the procedures in prepared testimony for a Senate hearing on Tuesday. “We are evaluating whether application of more stringent standards would have prompted the bank to better manage the risks that led to its failure,” Barr said.
About two dozen large regional banks have asset totals within the $100–$250 billion range. Only 12 were above the $250 billion threshold as of last year; three of them are custodial or investment banks like Goldman Sachs, Bank of New York Mellon, and State Street.
Federal authorities are stopping at nothing to save large regional banks, while those banks continue to duck regulatory scrutiny.
Along with the extreme discount on the asset purchases, the FDIC is handing First Citizens a loss-share agreement on its purchase of commercial loans, taking on a portion of any losses from those loans. The agency is also giving First Citizens a five-year, $35 billion loan and a $70 billion line of credit to deal with any deposits that move away to other banks. Given all this largesse, the transaction could be seen as less of a purchase and more of an early Easter present.
Meanwhile, the FDIC announced that it expects to lose around $20 billion on the Silicon Valley Bank collapse. That’s roughly equivalent to about 10 percent of the assets the bank had at the time of its failure. If the FDIC hadn’t guaranteed all deposits at the bank, then, the haircut on uninsured depositors would have been relatively modest.
The SVB/First Citizens deal has eased concerns over other large regionals, with shares of the troubled First Republic Bank rising on Monday. The Fed’s new Bank Term Funding Program (BTFP) grants loans against collateral like Treasury bonds at par, even if the assets have lost significant market value. First Republic doesn’t hold the kind of assets that would be eligible for BTFP, as it is mostly invested in municipal bonds. But the Fed is considering rejiggering the program in a way that would help First Republic. Already, banks have tapped the BTFP for $53.7 billion, suggesting continued struggles at regional lenders.
The larger point is that federal authorities are stopping at nothing to save large regional banks, through shotgun weddings and enormous support, while those banks continue to duck the regulatory scrutiny that critics say would have caught the problems that triggered the current crisis. The lack of punishment for troubled institutions saps the government’s credibility, critics argue. “The regulators’ move sets dangerous expectations for future bailouts,” said former FDIC chair Sheila Bair in a Financial Times op-ed two weeks ago.
Newly robust First Citizens brings the center of gravity in the consumer banking industry closer to North Carolina. Though First Citizens is now a top 25 bank, it is only the fourth-largest in the Tar Heel State, behind Bank of America, Truist (created through the merger of North Carolina–based BB&T and SunTrust), and Wells Fargo, which has a significant North Carolina footprint thanks to its purchase of Wachovia during the 2008 financial crisis.
A significant amount of First Citizens’ campaign contributions in 2022 went to North Carolina–based candidates, including House Financial Services Committee chair Patrick McHenry (R-NC) and successful GOP Senate candidate Ted Budd. McHenry and Rep. Jim Clyburn (D-SC) were the only recipients of contributions from First Citizens’ political action committee.
