SAN JOSE, Calif. — A federal judge has rejected a $1.71 billion claim against the Federal Deposit Insurance Corp. stemming from the 2023 collapse of Silicon Valley Bank, ruling that the bank’s former parent company bore responsibility for decisions that left the institution exposed to rising interest rates.
U.S. District Judge Beth Labson Freeman ruled Friday that SVB Financial Trust, which succeeded Silicon Valley Bank’s former holding company, could not recover the money from the FDIC, according to Reuters.
In a 206-page decision following a 12-day bench trial, Freeman found that former bank executives acted negligently by taking excessive interest-rate and liquidity risks as they sought to increase profits through heavy investments in long-term government bonds and mortgage-backed securities.
Those investments lost substantial value as the Federal Reserve raised interest rates.
More Than $4 Billion in Losses
Silicon Valley Bank collapsed in March 2023 after rising rates contributed to at least $4.52 billion in losses in its investment portfolio, Reuters reported. The losses helped spark a run on the bank, which held deposits for numerous technology startups.
The bank had about $209 billion in assets before its failure, making it the third-largest traditional U.S. bank or thrift failure by assets.
Judge Rejects Arguments Over FDIC Sales
SVB Financial Trust had argued in part that the bank’s directors were protected by the business judgment rule when they authorized the investments and that the losses occurred only because the FDIC later sold securities at a loss, according to Reuters.
Freeman rejected those arguments.
“The holding company chose to run the bank through holding company officers in accordance with the global, enterprise-wide policies, limits, and metrics that the holding company established,” Freeman wrote, according to Reuters. “Having made this choice, it must live with the consequences.”
Freeman found that Silicon Valley Bank’s chief financial officer, treasurer and other officials acted negligently in managing the institution’s interest-rate and liquidity risks and did so with encouragement from the board, Reuters reported.
Attorneys for SVB Financial Trust did not immediately respond to Reuters’ requests for comment. The FDIC and its attorneys also did not immediately respond.
Collapse Preceded Other Major Failures
Silicon Valley Bank’s failure sent shock waves through the banking industry because most of its deposits were uninsured and many of its customers were technology companies and startups.
Its collapse was followed by the failures of Signature Bank and First Republic Bank in 2023.
Washington Mutual, which failed in 2008, remains the largest traditional U.S. bank or thrift failure by assets. First Republic ranks second, followed by Silicon Valley Bank and Signature Bank, Reuters reported.
The FDIC also is pursuing separate litigation against 17 former Silicon Valley Bank executives and directors, including former CEO Gregory Becker. The agency is seeking billions of dollars in that case over allegations of gross negligence and breaches of fiduciary duty.
