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ARTICLE · 23 MARCH 2023

Federal Banking Agencies Exercise Emergency Powers During March 2023 Crisis

Morrison Foerster
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On March 13, 2023, Secretary of the Treasury Janet Yellen invoked the systemic risk exemption after receiving recommendations from the board of the Federal Deposit Insurance Corporation (FDIC)...

United StatesFinance and Banking
Jeremy Mandell
Jeremy Mandell
Jason Shafer
Jason Shafer
Dillon Guthrie
Dillon Guthrie
Jason Nerland
Jason Nerland
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Federal Authorities Invoke the Systemic Risk Exemption

On March 13, 2023, Secretary of the Treasury Janet Yellen invoked the systemic risk exemption after receiving recommendations from the board of the Federal Deposit Insurance Corporation (FDIC) and the Federal Reserve Board (FRB), and after consulting with the president, in order to allow the FDIC to protect all depositors of SVB and Signature Bank.

Generally, the FDIC is prohibited from protecting "depositors for more than the insured portion of deposits" that would have the effect of increasing losses to the Deposit Insurance Fund. 1 However, the Federal Deposit Insurance Act (FDI Act) includes a "systemic risk exemption" that enables the FDIC to take any other action "as necessary to avoid or mitigate" "serious adverse effects on economic conditions or financial stability." 2 Pursuant to this authority, the FDIC will insure all deposits of the failed banks, which were transferred to the two bridge banks

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Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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