By Jonathan Stempel
Aug 31 (Reuters) – A U.S. judge said the former parent of Silicon Valley Bank cannot pursue a $1.71 billion claim against the FDIC stemming from the bank’s March 2023 collapse, one of the largest U.S. bank failures.
In a 206-page decision on Friday, U.S. District Judge Beth Labson Freeman in San Jose, California, held that a trust that took over the parent’s claims was responsible for former executives’ ill-fated decisions to try boosting profit by investing heavily in long-term government bonds and mortgage-backed securities.
Silicon Valley Bank collapsed after rising interest rates caused at least $4.52 billion of losses in the bank’s investment portfolio, sparking a bank run that disrupted many technology startups whose deposits it held.
Most of the bank’s deposits were uninsured. The bank’s demise presaged the collapses of two other large lenders in 2023, Signature Bank and First Republic Bank.
Silicon Valley Bank’s holding company has been succeeded by SVB Financial Trust. Lawyers for the trust did not immediately respond to requests for comment on Monday. The Federal Deposit Insurance Corp and its lawyers did not immediately respond to similar requests.
‘LIVE WITH THE CONSEQUENCES’
Freeman said the bank’s chief financial officer, treasurer and others acted negligently by taking excessive interest rate and liquidity risks, with encouragement from the board of directors.
She rejected the trust’s arguments that it was protected because directors exercised their business judgment in authorizing the investments, and the losses occurred only because the FDIC sold the securities at a loss.
“The holding company chose to run the bank through holding company officers in accordance with the global, enterprise-wide policies, limits, and metrics that the holding company established,” Freeman wrote. “Having made this choice, it must live with the consequences.”
Freeman ruled after a 12-day, non-jury trial.
Silicon Valley Bank had about $209 billion of assets before it failed.
The FDIC is also suing 17 of the bank’s former executives and directors, including onetime Chief Executive Gregory Becker, to recover billions of dollars for alleged gross negligence and breaches of fiduciary duty.
Washington Mutual is the largest traditional U.S. bank or thrift by assets to fail, collapsing in 2008. First Republic, Silicon Valley Bank and Signature rank second, third and fourth.
(Reporting by Jonathan Stempel in New York; Editing by Bill Berkrot)