Bank Default Response Team Authors Expert Analysis for Law360 on Silicon Valley, First Republic Bank Collapses

Washington, D.C. (May 31, 2023) - Washington, D.C. Partner Thomas Brooks, Los Angeles Partner Alexis Crump, and Washington, D.C. Managing Partner Jane Luxton recently penned an Expert Analysis article for Law360, titled “A Comparison Of 2 Bank Failures, With Regulatory Lessons,” which compares the circumstances surrounding the closures of Silicon Valley Bank (SVB) and First Republic Bank (First Republic).

The authors begin the article by providing a brief summary of SVB and First Republic’s closures, noting that although similar factors contributed to the banks’ failures, the processes through which they were sold differed. They explain that although both banks experienced rapid growth and that their uninsured deposits far exceeded their insured deposits, the banks’ respective demises ultimately arose from depositors’ panic, which led to “quick, unexpected historical outflows of deposits.” The authors elaborate, “Failure to adhere to supervisory imposed safety and soundness standards make a bank unsafe. Banking is a business of trust. When that trust is lost, depositors will turn elsewhere to safekeep their funds.”

The authors next describe how the timing of the banks’ resolution processes differed. They note that following SVB’s closure, it took the Federal Deposit Insurance Corporation (FDIC) more than two weeks to find a buyer, while the FDIC closed First Republic in one day and sold it. They discuss potential reasons for this difference, stating that because the Federal Reserve was the primary federal regulator of SVB, the FDIC had less knowledge of the financial status of SVB and its safety-and-soundness issues. In contrast, the FDIC was the primary federal regulator of First Republic.

The authors close the article by observing that because “almost half of all deposits are uninsured, federal and state bank regulators face a challenge as to how to control or diminish rapid deposit outflows when even a hint of financial panic exists.” They conclude that to prevent future bank failures, “Quicker use of enforcement tools and better communication among [the regulators] would be a useful start.”

Mr. Brooks is chair of Lewis Brisbois’ Bank Default Response Team and a member of its Banking & Finance, Corporate, Commercial Lending, and Securities & Corporate Finance Practices. With more than 30 years of experience, he has represented a variety of commercial banks, thrift institutions, online lenders, fintech entities, money services businesses, consumer finance lenders, and financial services trade associations. Mr. Brooks formerly served as general counsel of the FDIC, and prior to that as general counsel of the U.S. Senate Committee on Banking, Housing and Urban Affairs.

Ms. Crump serves as a co-chair of Lewis Brisbois’ Commercial Lending Practice and as a vice-chair of its Corporate and Italy Practices. She is also co-chair of the firm's Diversity, Equity & Inclusion Committee. Ms. Crump has more than 25 years of experience in private equity, municipal finance, real estate, EB-5 financing, and mergers and acquisitions. Over her career, she has closed more than $3 billion of financings, acquisitions, and sales for private equity, lending institutions, developers, and public entities.

Ms. Luxton is co-chair of Lewis Brisbois’ Government Investigations & White Collar Defense Practice, chair of the Environment, Land, & Natural Resources Law Practice, chair of the Administrative Law & Regulatory Practice, chair of the PFAS Practice, co-chair of the Sustainability and Environmental, Social, and Governance (ESG) Practice, and vice-chair of the Consumer Financial Services Practice. With extensive experience in environmental as well as other federal regulatory, policy, and litigation matters, she advises businesses, associations, and coalitions in navigating all levels of the federal regulatory process, including appellate advocacy.

Read the full Expert Analysis article on Law360 here (subscription may be required) or as a PDF here.