SVB Financial Group, the bankrupt former parent company of Silicon Valley Bank, has hit a roadblock in its attempt to recover approximately $1.93 billion, which had been seized by regulators following the bank’s collapse. On Monday, the company announced that the United States government formally rejected its demand for the return of these funds.
The dispute between SVB Financial and the U.S. Federal Deposit Insurance Company (FDIC) has been ongoing since March. It began when the FDIC severed the company’s access to the cash held at the failed bank. In a recent court filing in Manhattan, SVB Financial revealed that the FDIC had rejected its most recent effort to retrieve the funds on October 20th.
The fall of the Santa Clara, California-based bank, along with another mid-sized lender, Signature Bank, had significant repercussions in the banking sector. It triggered a wave of investor concern about other potential crises in the banking system. Additionally, it played a role in UBS Group AG’s acquisition of Credit Suisse Group AG, a bank with a 167-year history.
To prevent a more extensive financial crisis, the FDIC took the unprecedented step of fully guaranteeing all deposits at SVB, surpassing the $250,000 limit guaranteed by law. SVB Financial argued that its own accounts should have been included under the FDIC’s protective umbrella, which encompassed “all” deposits at the bank.
According to SVB Financial, the FDIC initially permitted the company to maintain access to its bank accounts, treating them like those of any other bank customer. However, the FDIC reversed this decision a few days later and pushed the company into bankruptcy on March 17.
In response, SVB Financial filed a lawsuit against the FDIC in U.S. bankruptcy court in July, seeking the recovery of the seized funds. The FDIC countered that this legal action was an improper attempt to circumvent its standard procedures for evaluating bank insurance claims.
SVB Financial reported on Monday that it had now followed the FDIC’s claim process and that the FDIC had rejected its claim. In the FDIC’s October 20th letter, it argued that its public statements about safeguarding “all depositors” did not impose an obligation to protect the bank’s owner. The denial letter gave SVB Financial 60 days to appeal the decision in U.S. federal court.
Spokespersons for both the FDIC and SVB Financial declined to comment on the matter.
In the wake of its bankruptcy, SVB Financial has embarked on a strategy to divest assets. It spun off its investment banking unit in June and has been exploring potential sales of its venture capital and credit investment businesses.
The legal case is titled “SVB Financial Group v. FDIC” and is currently in the U.S. Bankruptcy Court for the Southern District of New York under case number 23-01137.
Legal representation for SVB Financial Group includes James Bromley and Robert Sacks of Sullivan & Cromwell. Representing the FDIC is Ben Finestone of Quinn Emanuel Urquhart & Sullivan, and for the FDIC in its capacity as receiver for SVB, Kurt Gwynne of Reed Smith.
