Cayman Islands Regulator Exploring Legal Options After FDIC Seized SVB Deposits
Summary
- Government official recently met with Chinese depositors whose accounts were drained after SVB’s collapse
HONG KONG—The Cayman Islands Monetary Authority has engaged lawyers to assess its legal options after deposits at Silicon Valley Bank’s branch in the territory were seized by the Federal Deposit Insurance Corp., a government official told affected depositors.
André Ebanks, the Cayman Islands’ minister of financial services and commerce, met in person last week with some of SVB’s depositors in Hong Kong. He told them the financial regulator has retained lawyers and is looking for ways to help them, according to meeting attendees.
Chinese and other Asian investment firms that banked with SVB’s branch in the Cayman Islands were left out in the cold following the U.S. bank’s collapse in March, The Wall Street Journal previously reported. All of SVB’s U.S. depositors were made whole when the FDIC intervened in mid-March to prevent the lender’s failure from destabilizing the U.S. banking system. The FDIC said at the time that its action was “designed to protect all depositors of Silicon Valley Bank." It subsequently arranged a sale of most of SVB’s U.S. deposits and loans to First Citizens Bancshares.
The FDIC, however, took the deposits of the failed lender’s Cayman Islands branch and informed those depositors that they would be treated as general unsecured creditors in SVB’s receivership. It also reiterated that the bank’s foreign deposits weren’t covered by U.S. deposit insurance, and said depositors at the branch could file claims seeking compensation.
Neither the FDIC nor the Cayman Islands Monetary Authority have disclosed how much in deposits SVB’s Cayman Islands branch had at the time of the bank’s failure. SVB’s financial reports previously said the lender had $13.9 billion in foreign deposits at the end of 2022. The Cayman branch, which was set up to primarily support the bank’s activities in Asia, was used by venture-capital, private-equity and other investment firms that needed to perform dollar transactions abroad.
The Cayman depositors, which include multiple Chinese investment firms, haven’t been able to access their funds that were at the branch since SVB’s failure. Their bank-account statements showed a zero balance at the end of March after their money was transferred to the SVB receiver.
At one of the meetings in Hong Kong last week, Ebanks told SVB depositors that the lawyers hired by the Cayman Islands Monetary Authority were analyzing various options, and that discussions were at an early stage, according to people who were present. That meeting, which was organized by a nonprofit association for Chinese venture-capital and private-equity firms, was attended by representatives from about 10 investment firms, the people added.
A representative of the association said at the meeting that many firms had tried and failed to retrieve their funds during the collapse of SVB, people who were present said. A few individuals, who were accompanied by their lawyers, also voiced unhappiness with earlier statements from both U.S. and Cayman Islands regulators that led the foreign depositors to believe that their funds would be protected, the people added.
Ebanks assured the depositors that CIMA was working on the situation, and described its initial position as akin to being in the passenger seat while the FDIC was the driver, the people said.
Besides the Cayman Islands, SVB had a bank subsidiary in the U.K. and branches in Germany and Canada. The German and Canadian branches only made loans and didn’t take deposits. Its U.K. bank, which has been taken over by HSBC, had the equivalent of about $8.5 billion in deposits on March 10 of this year.
The Cayman Islands doesn’t have an equivalent to U.S. federal deposit insurance, which officially covers up to $250,000 per bank account. A 2009 offshore financial-center assessment report by the International Monetary Fund said that authorities in the British overseas territory could explore options in the future to establish a deposit insurance fund that local banks could participate in.
The financial pain being felt by SVB’s foreign depositors could make investment firms that are incorporated or doing business in offshore financial hubs reconsider where they should put their money and what protections they have.
“The risk perception is going to be higher for someone who has a bank account in the Cayman Islands, or wants to open one," said Winston Wong, an attorney at Flint & Battery, a law firm in Singapore.
“From an industry point of view, it sets a precedent. It could disincentivize funds and companies to transfer their funds to the Caymans Islands," he added.
Following the sale of most of SVB deposits and loans to First Citizens, about $90 billion in securities and assets remained in receivership under the FDIC, which will dispose of them. The agency has estimated that SVB’s failure will cost its deposit insurance fund around $20 billion.
Write to Frances Yoon at frances.yoon@wsj.com
