FDIC Authorizes Potential Legal Action Against Former SVB Executives

The Federal Deposit Insurance Corporation (FDIC) board of directors reportedly votedunanimously to authorize potential legal action against six former officers and 11 former directors of Silicon Valley Bank (SVB).

This authorization was approved by both Democrats and Republicans on the board, Reuters reported Tuesday (Dec. 17).

In past legal actions taken against executives at failed banks, the FDIC recovered $4.48 billion between 2008 and 2023, according to the report.

The failure of SVB cost the Deposit Insurance Fund an estimated $23 billion, FDIC Chairman Martin J. Gruenberg said in a statement released Tuesday in conjunction with the board meeting.

The request for authority to sue SVB followed the FDIC’s investigation of the bank’s failure, Gruenberg said.

The FDIC found that the former directors and officers of the bank mismanaged its held-to-maturity securities portfolio by purchasing long-dated securities when interest rates were rising, allowed an over-concentration of these assets, mismanaged the bank’s available-for-sale securities portfolio by removing interest rate hedges, and permitted an “imprudent payment” of a dividend to the bank’s holding company while the bank was experiencing financial distress, according to the statement.

“As a result of the mismanagement of the held-to-maturity securities portfolio, the termination of interest-rate hedges on the available for sale securities portfolio, and the issuance of the bank-to-parent dividend, SVB suffered billions of dollars in losses for which the FDIC as Receiver has both the authority and the responsibility to recover,” Gruenberg said.

Gruenberg added that he supported the request for authority to sue because “it is vital that Bank leadership be held accountable for their failures.”

SVB was taken over and closed by a California state financial regulator in March 2023 after customer withdrawals and plummeting stock prices beset the bank amid investor concerns about its liquidity. The regulator then appointed the FDIC as the bank’s receiver.

The FDIC, the Federal Reserve and the U.S. Treasury said shortly thereafter that SVB’s depositors would be covered and would have access to their funds.

In late March 2023, two weeks after the collapse of SVB, First Citizens Bank acquired the bank.