A federal judge in California has ruled against SVB Financial Trust, the successor to Silicon Valley Bank's former parent company, denying its claim for $1.7 billion from the Federal Deposit Insurance Corp. The judge, Beth Labson Freeman, found that decisions made by the holding company's officers directly led to the bank's collapse in March 2023, making it one of the largest bank failures since the 2008 financial crisis.
Judge Freeman's 206-page findings of fact detailed that officers, including the chief financial officer and global treasurer, breached their fiduciary duties by taking on excessive interest-rate and liquidity risks. This included investing heavily in long-term government and mortgage-backed securities, removing partial hedges against rising interest rates, and approving a $294 million dividend to the parent company when the bank was in dire financial condition. The judge concluded these actions were a substantial factor in the bank's losses, which an FDIC expert testified amounted to at least $4.52 billion in securities losses alone, and an additional $636 million from retaining unhedged securities.
The ruling highlighted that the officers' conduct was not in good faith or willful misconduct, but their negligence made the trust liable. The judge also found that the holding company aided and abetted these breaches through its finance, risk, and compensation committees, and that the $294 million dividend was an avoidable transfer because the bank was operating with unreasonably small assets. The dividend's primary purpose was to fund a stock buyback after SVBFG shares had significantly declined.
This decision marks a significant development in the fallout from SVB's collapse, solidifying the FDIC's position and attributing blame to the management of the former parent company. The Federal Reserve had previously pointed to bank management and its own oversight as factors in the bank's failure.
