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I read on Regulators Hold Auction for Silicon Valley Bank (The Wall Street Journal):

Treasury officials confirmed the auction to lawmakers and staff on a call Sunday afternoon, according to people familiar with the matter, saying bids were expected by 2 p.m. Eastern Time.

That implies that the auction for Silicon Valley Bank is held privately (by the United States Federal Deposit Insurance Corporation (FDIC)). Why is the auction for Silicon Valley Bank held privately? Why not make it public?

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    It's unclear what leads you to the conclusion that it is "privately held", or what meaning you have in mind for the term "privately". Also, the phrase "privately held" means that something is owned privately, but one doesn't own an auction. If you mean that the auction is conducted in a private manner, then that's "held privately", not "privately held". Mar 14, 2023 at 23:37
  • @Acccumulation Thanks, I meant that the auction is conducted in a private manner. Mar 15, 2023 at 0:54

2 Answers 2

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"Public" has a particular meaning in a share sale. It means that any investor can purchase shares and comes with lots of rules about transparency.

But what the regulators want is a single, deep pocketed, sophisticated investor, to buy the bank in one go (not selling shares) and take responsibility for its assets and liabilities. This may well not be an attractive investment for someone buying shares, as the liabilities may well be significant. Such a public sale may fail.

So the simple reason that this isn't a public sale of shares is that the regulator doesn't want to sell to the public.

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    Matt Levine explains this well in his (paywalled) newsletter. Essentially, the bank has a bunch of long-horizon assets such as bonds, and a bunch of depositors who want their money back now. If you just held the assets to maturity, you'd eventually be able to pay everyone back (at least, that is what the FDIC hopes is the case), but then you're not really much of a bank anymore. So you get someone else to buy you out for "a Snickers bar" (as Levine puts it), and they pay off the depositors immediately.
    – Kevin
    Mar 13, 2023 at 6:58
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    But in order for that to work, the buyer has to have the money to pay off the depositors, or else we're right back where we started. So you can't "just do an IPO or whatever" and hope for the best.
    – Kevin
    Mar 13, 2023 at 6:58
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    While we're recommending Matt Levine it's worth mentioning that you can get his newsletter emailed for free, although all the links therein to bloomberg are paywalled.
    – AakashM
    Mar 13, 2023 at 10:24
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    Part of what is going on is that the FDIC wants to take action swiftly before more harm can be done from the bank failure. A quick auction to select pre-qualified bidders can proceed far more quickly than an offering more widely opened to all sorts of bidder.
    – ohwilleke
    Mar 13, 2023 at 21:28
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    @Kevin Or even worse, the buying bank doesn't have the money to cover the failed bank depositor withdrawals, in reality or perceived, causing the buying bank's depositors to get nervous, triggering a second bank run, and now you got two failed banks. Thus, the FDIC not only cares about the buying bank's financial health, but also public perceptions of it. As part of that, the FDIC doesn't want news to get out that Bank B was passed up for a bid because they don't think they were in that great of a shape either.
    – user71659
    Mar 13, 2023 at 23:21
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It's not terribly clear what you mean by those terms, but FDIC doesn't sell a failing bank to random Joes (or even to Elon Musk[s] directly), but to other banks, basically:

The FDIC markets troubled institutions to healthy insured depository institutions. The FDIC is statutorily required to resolve failed institutions using the least costly resolution option minimizing losses to the Deposit Insurance Fund. [...]

If an insured depository institution is unable to resolve its issues, the FDIC will implement its resolution process by which qualified bidders may seek to acquire the assets and assume the liabilities of the failing institution.

While qualified bidders participate in the resolution process for a variety of strategic reasons, a successful resolution can provide a seamless transition for depositors and borrowers.

Nor is this unusual/new, except maybe the attempt to sell all of it one auction (which failed--only one offer was submitted by the deadline and that was rejected by FDIC, so they are now selling it in somewhat smaller pieces). As a bit of history that's more the norm:

As receiver, the FDIC typically seeks to sell the loans of a bank in receivership to healthy lending institutions. [...] During the 2008 financial crisis most bank failures resulted in an arranged sale with government assistance and the uninsured deposits were transferred to a healthy bank. In those cases, the sale was arranged and completed almost simultaneously with the appointment of the FDIC as a receiver. In the case of SVB, that has not happened as of the date of this release. However, given the potential impact of SVB’s failure on other regional banks and the urgency of this situation given the large amount of uninsured deposits, based on press reports, the federal banking regulators are soliciting bids to quickly arrange a sale of SVB or it’s assets to one or more banks or to institutions that may be willing to purchase the uninsured deposits only, at a discount, in either case resulting in more rapid liquidity for holders of uninsured deposits.

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    Thanks, I meant that the auction is conducted in a private manner. Mar 15, 2023 at 0:55

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