On the evening of September 25, 2008, federal regulators seized Washington Mutual (“WaMu”) in what was, and still is, the largest bank failure in United States history. The government immediately sold virtually all of WaMu to J.P. Morgan Chase (“Chase”), at which point Chase took control of all of WaMu’s branches and deposits, and became the employer of WaMu’s more than 43,000 workers.
In the ensuing months, WaMu’s headquarters, which were in Washington, were shuttered and its operations were moved to Chase’s New York headquarters and other locations throughout the country. Many WaMu branches were closed rather than rebranded as Chase locations. While some employees initially stayed on with Chase, thousands were laid off. Others were offered bonuses to remain with Chase temporarily for a transition period.
For many, the last several days have conjured memories of the dark era of the WaMu collapse. The recent failures of California based Silicon Valley Bank (“SVB”) and New York based Signature Bank (“Signature”) are now the second and third largest bank failures in United States history, respectively. Thus far, it seems no deals have been reached for immediate WaMu-esque sales of SVB and Signature to other financial institutions.
What, then, will happen to the employees of these failed banks? Many will remain employed for the immediate term.
When California regulators shut down SVB, they appointed the Federal Deposit Insurance Company (“FDIC”) as receiver to manage SVB’s business and finances. In turn, the FDIC created the Deposit Insurance National Bank of Santa Clara (“DINB”) and transferred all of SVB’s insured deposits to that institution.
On March 10, 2023, the FDIC announced that all seventeen branches of SVB and its main office will reopen on Monday, March 13, 2023, at which point depositors will be able to withdraw all insured deposits. Two days later, the Federal Reserve announced that depositors would be able to withdraw all their funds, even those in excess of FDIC insurance limits.
Obviously, there will be a tremendous demand for withdrawals that can only be met if SVB’s former employees remain on staff at DINB. That is why, according to reports, former SVB employees received an email this weekend requesting that they transition to employment with DINB for at least the next forty-five days. These employees will receive 1.5 times their ordinary rates of pay, and hourly employees will receive 2 times their ordinary rates of pay if they work overtime. Employees are being offered this premium to entice them to assist in an orderly transition instead of immediately jumping from the sinking ship.
Meantime, it has been reported that federal officials spent the weekend trying to encourage the sale of SVB by opening an auction for bids to acquire the bank. If a sale is arranged, former SVB employees might have hope for future employment with the acquiring institution. If not, their employment with DINB will eventually come to an end when SVB’s affairs are wound up, as Treasury Secretary Janet Yellen has said that a government bail out of SVB is not under consideration.
As in the case of SVB, the FDIC was appointed the receiver of Signature by the New York State Department of Financial Services. The FDIC then created Signature Bridge Bank and transferred substantially all of Signature’s assets and deposits to that entity. Like SVB’s customers, Signature’s depositors will be made whole for all amounts, even in excess of FDIC limits.
Since all forty of Signature’s branch locations are expected to be open on Monday, March 13th, it is reasonable to conclude that at least some of Signature’s employees have been asked to stay on board. As of now, the terms of their continuing employment have not been made public.
The FDIC has announced that it will market Signature to potential buyers, which means that there may be an option for former Signature employees to become employed by the acquiring institution if one emerges. Whether, when and how that will happen remains to be seen.
Stay tuned for more information about this developing story.