FDIC Prevails in $1.71 Billion Court Case Involving SVB Collapse

A federal judge has ruled that the Federal Deposit Insurance Corporation (FDIC) cannot be sued by the former parent company of Silicon Valley Bank (SVB) for a $1.71 billion claim stemming from the bank's collapse. U.S. District Judge Beth Labson Freeman in San Jose determined that the trust succeeding SVB Financial, the bank's holding company, must bear responsibility for the negligent risk-taking by former executives.

The ruling follows a 12-day bench trial where Freeman found the executives were negligent in taking excessive interest rate and liquidity risks, encouraged by the board. They invested heavily in long-term government and mortgage-backed securities in a bid to boost profits, leading to $4.52 billion in losses when rising interest rates triggered portfolio losses.

Silicon Valley Bank, with $209 billion in assets, collapsed due to a bank run triggered by the losses, disrupting technology startups that held deposits. The trust argued the directors were protected by the business judgment rule and blamed the FDIC for selling bank securities at a loss. Freeman rejected these arguments, stating the company chose its course of action and must live with the consequences.

The FDIC is also suing several former executives and directors for alleged gross negligence and breach of fiduciary duty.