The parent of former Silicon Valley Bank, SVB Financial, has sued the Federal Deposit Insurance Corp (FDIC) to recoup about $2 billion in deposits.
The company says the amount was seized by the regulator following SVB’s collapse.
When the FDIC assumed control of SVB in March, it assured depositors they would have access to all their funds rather than the standard $250,000 guaranteed by federal deposit insurance.
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However, SVB Financial, now a bankrupt holding company, claims the FDIC has refused to release the nearly $2 billion it had deposited at the failed bank.
The FDIC has not provided a comment on the lawsuit.
Most of the failed bank’s assets and deposits were transferred to First Citizens Bancshares, the new owner.
But FDIC retained the deposits made by SVB Financial, citing their potential use to cover the costs associated with the bank’s failure.
SVB Financial lawyers have asked the bankruptcy judge overseeing the company’s reorganization to compel the FDIC to grant them at least partial access to the funds.
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They also sought to explain within two weeks how it plans to hold SVB Financial accountable for the bank’s failure costs.
The lawsuit was filed with the US Bankruptcy Court.
The complaint says the $1.93 billion in account funds is a critical asset for SVB Financial’s reorganization efforts and that the lack of access to these funds hinders its ability to proceed.
Lawyers said: “The $1.93 billion in account funds is the core estate asset.
They added: “lack of access to these account funds is impeding [the company’s] ability to reorganize.”
During court proceedings, FDIC lawyers have noted the informal relationship between the failed bank and its former parent.
They highlight potential complications regarding owning the $2 billion deposited by SVB Financial.
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If any portion of these funds is deemed to belong to the bank, the FDIC may utilize them to offset the costs of the bank’s rescue.
SVB Financial filed for bankruptcy in March following Silicon Valley Bank’s receivership and separation from the holding company.
The Chapter 11 filing marked the largest bankruptcy resulting from a bank failure since Washington Mutual in 2008.
The collapse of SVB cost an estimated $16 billion to the FDIC’s deposit insurance fund, funded by banks under the agency’s supervision.
The resolution of the $2 billion in deposits will significantly impact SVB Financial’s creditors, who rely on a portion of these funds to repay approximately $3.5 billion in debt owed by the former parent.
