A federal judge has ruled that SVB Financial Trust, the former parent of Silicon Valley Bank, can move forward with its lawsuit seeking to reclaim $1.93 billion in deposits seized by the Federal Deposit Insurance Corp. (FDIC) after the bank’s dramatic collapse in March 2023.
In a decision handed down Thursday, a judge in San Jose, California, found that SVB Financial Trust presented a plausible case that the FDIC, in its corporate capacity, maintained control over the disputed funds. The ruling keeps the lawsuit alive, though the judge acknowledged the claims were “vanishingly thin.”
The FDIC had pushed back, arguing that the deposits were under the control of its receivership arm, a separate legal entity that SVB Financial Trust is also suing. The judge dismissed the former parent company’s due process claim but allowed it to argue that it had relied on the FDIC’s assurances about the safety of its deposits.
The collapse of Silicon Valley Bank, triggered by losses in long-term government bonds and mortgage-backed securities amid rising interest rates, sent shockwaves through the financial sector. A bank run ensued, fueled by concerns over a large volume of uninsured deposits, disrupting numerous tech startups that had banked with SVB.
Before its failure, SVB controlled approximately $209 billion in assets, making it one of the largest bank collapses in U.S. history. Much of its operations were later taken over by First Citizens BancShares, a North Carolina-based lender.
The ruling comes just weeks after the FDIC sued 17 former SVB executives and directors, including ex-CEO Gregory Becker, accusing them of gross negligence and breaches of fiduciary duty. The agency called the bank’s downfall a “case of egregious mismanagement” of interest rate and liquidity risks.
The legal battle between SVB Financial Trust and the FDIC now moves forward, setting the stage for a high-stakes showdown over nearly $2 billion in contested funds.
