On January 16, the FDIC filed a lawsuit against 17 former executives and directors of Silicon Valley Bank, aiming to recover billions of dollars. The lawsuit alleges gross negligence and breaches of fiduciary duty that led to the bank's collapse in March 2023, one of the largest in U.S. banking history.
The FDIC's complaint, lodged in a San Francisco federal court, asserts that the defendants disregarded key banking standards and the bank's risk policies by exposing the institution to excessive risks in pursuit of immediate profits and stock price enhancement.
Criticism was directed at the bank's heavy reliance on unsecured, long-term government bonds sensitive to interest rates like U.S. Treasuries and mortgage-backed securities, a gamble that backfired with rising rates.
The lawsuit also condemned the "grossly imprudent" $294 million dividend paid to its parent company in December 2022, a move that weakened capital reserves during a period of financial strain and internal disarray shortly before the bank's downfall.
Describing the situation as "egregious mismanagement of interest-rate and liquidity risks," the complaint singled out former Chief Executive Gregory Becker, former Chief Financial Officer Daniel Beck, and others among the defendants.
Following the filing, Becker's representative cited his unavailability for comment due to travel commitments. Laura Izurieta, the former Chief Risk Officer, faced backlash as a defendant, with her legal team arguing she had offered sound risk management guidance before resigning in April 2022, well ahead of the bank's collapse.
No immediate reactions were received from the legal teams representing the remaining defendants.
Silicon Valley Bank's collapse on March 10, 2023, and subsequent takeover by the FDIC sent shockwaves through financial markets. The upheaval impacted depositors and customers due to a significant portion of deposits being uninsured, echoing concerns related to the 2008 financial crisis.
First Citizens Bancshares, a North Carolina institution, acquired Silicon Valley Bank's assets as part of an FDIC-managed sale, following the bank's failure with approximately $209 billion in assets. Significant past U.S. banking failures like Lehman Brothers in 2008, Washington Mutual in 2008, and First Republic in 2023 draw parallels but testify to Silicon Valley Bank's unprecedented collapse.