SVB’s Ex-Owner Ends Bankruptcy Amid FDIC Litigation

Silicon Valley Bank’s former owner has gotten a judge’s permission to end its bankruptcy.

As Reuters reported Saturday (Aug. 3), SVB Financial Group has been given leave to turn over its assets to its creditors, bringing its bankruptcy to a close.

According to the report, the company’s bankruptcy restructuring includes a provision for the establishment of a trust to move forward with a suit against the U.S. Federal Deposit Insurance Corp. (FDIC) which seized $1.9 billion from SVB Financial last year during Silicon Valley Bank’s collapse — one of the biggest in U.S. history

SVB claims that this money should be returned because the FDIC had invoked a “systemic risk” exemption to safeguard all deposits at Silicon Valley Bank, including accounts with upwards of the $250,000 that the FDIC usually protects.

The FDIC maintains it didn’t set out to protect SVB Financial’s bank accounts, but rather that it legally seized the money to cover the cost of bailing out Silicon Valley Bank.

Depending on the outcome of the lawsuit, SVB Financial’s senior bondholders — who are owed $3.3 billion — will get back between 41% and 96% of what they are owed, Reuters said.

SVB Financial filed for bankruptcy in March 2023, soon after Silicon Valley bank was shut down and taken over by regulators. The FDIC took over the bank following a run on deposits, and eventually sold the bank to First Citizens.

Silicon Valley Bank was one of a handful of regional banks that collapsed last year, leading the Federal Reserve and other U.S. regulators to put together new banking regulations in response to last year’s crisis, with rules focused on liquidity requirements to help prevent bank runs.

Amid the turmoil in the sector, PYMNTS has been tracking a shift in behavior related to banking, with smaller community banks and credit unions increasingly becoming the place where consumers go when they want credit cards.

The percentage of consumers with a community bank or credit union card as their primary card rose from 8.3% in 2020 to 13% in 2023, according to PYMNTS Intelligence, while close to a quarter of consumers reported that they would likely turn to these financial institutions the next time they wanted to sign up for a new card.