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Copyright © International Chamber of Commerce (ICC). All rights reserved. ( Source of the document: ICC Digital Library )
The decision by the US Federal Deposit Insurance Corporation (FDIC) to place California-based Silicon Valley Bank (SVB) into receivership has raised many questions amongst banks, businesses and other parties to letters of credit (L/Cs) involving the failed tech-specialist bank.
Lawyers have been quick to comment on the subject, generally acknowledging that they can only make broad opinions on the impact on L/Cs from the bank's collapse and are not offering legal advice. The situation regarding SVB and its subsidiaries is fast moving, and opinions may change as the situation develops.
Validity of L/Cs
Of the US lawyers to proffer opinions, Mintz addresses the question of whether an L/C issued by SVB on behalf or in favour of a business is still valid.
The Boston-based firm says L/Cs are typically treated as agreements that may be repudiated by the FDIC if burdensome. The FDIC must make its decision on repudiation within a reasonable time after its appointment as receiver.
While awaiting this determination, Mintz suggests it may be advisable for businesses to acquire a standby L/C from another financial institution. If an L/C is repudiated, the lawyers suggest the business consults with an attorney to determine whether it may have a claim for damages against FDIC stemming from such repudiation.
Counterparties honouring L/Cs
Another Boston-based law firm, Ropes & Gray, asks whether SVB L/Cs will be honoured by counterparties.
The firm suggests that this is an unsettled question at the moment, but it is possible that L/C counterparties will not view SVB issued L/Cs as creditworthy in the current circumstances and it may be beneficial for businesses to take proactive steps to make alternate arrangements where possible.
HSBC takeover of SVB UK
A deal was agreed this morning for HSBC to buy the British arm of the failed US tech-specialist bank, the UK government has announced. It appears L/C business will continue alongside other bank business as usual for this subsidiary and its customers.
"Customers of SVB UK will be able to access their deposits and banking services as normal from today," according to UK government statement.
Mintz has posted its Frequently Asked Questions Related to Silicon Valley Bank Receivership, here.
Ropes & Gray has posted an alert, Ongoing Developments at Silicon Valley Bank, which can be found here.
The UK government's statement, Government and Bank of England facilitate sale of Silicon Valley Bank UK, can be found here.
This article represents the views of the author and not necessarily those of the ICC or Coastline Solutions.