A federal judge ruled that Silicon Valley Bank's former parent may pursue a lawsuit to recover $1.93 billion of deposits seized by the Federal Deposit Insurance Corp after the bank's collapse in March 2023. U.S. District Judge Beth Labson Freeman in San Jose, California, stated that the former parent, now named SVB Financial Trust, made credible claims that the FDIC controlled the deposits, despite being described as "vanishingly thin."
The FDIC contended that it controlled the deposits as Silicon Valley Bank's receiver, a position that the former parent is also litigating against. Judge Freeman allowed the former parent to attempt to prove that it reasonably relied on FDIC assurances that the deposits were secure, leading them to keep them untouched, while dismissing a due process claim.
Legal representatives for both the FDIC and the former parent had no immediate comments on the ruling issued on Thursday.
Silicon Valley Bank's collapse came as a result of losses from rising interest rates in its government bonds and mortgage-backed securities. Its failure triggered a bank run due to a significant portion of uninsured deposits, impacting numerous depositors.
With about $209 billion in assets before its demise, Silicon Valley Bank's operations were mostly transitioned to First Citizens BancShares, a financial institution based in North Carolina.
Judge Freeman's decision comes six weeks after the FDIC sued 17 former Silicon Valley Bank executives and directors for alleged negligence and breaches of fiduciary duty, highlighting the bank’s mismanagement of interest-rate and liquidity risks.
The lawsuit, known as SVB Financial Trust v. FDIC, is being heard in the U.S. District Court for the Northern District of California under case number No. 23-06543.