SVB Financial Group has sued the Federal Deposit Insurance Corporation (FDIC) over its regulatory seizure of $1.93 billion. The news was reported by Reuters, which cited a recent bankruptcy court filing by the now-bankrupt bank.
Challenging the regulatory seizure
According to the report, SVB is attempting to recover the funds that were taken earlier this year. The FDIC seized those funds when it took control of Silicon Valley Bank after its collapse. That collapse occurred as a result of a sudden decline in deposits. Ultimately, the failed bank was acquired by First Citizens in a deal that was brokered by U.S. regulators.
SVB Financial Group claims that the regulatory seizure of its funds has impeded its reorganization efforts. The claim is that those monies generate in excess of $100 million a year. SVB asserts that it needs that money to avoid the need to rely on more costly financing options.
The failed bank’s complaint centers around its claims that the FDIC had persuaded the bank to maintain its funds at the bank. Regulators had also offered guarantees for all of the bank’s deposits, which SVB apparently believes should have included its own funds alongside those of its customers.
As the complaint notes, the FDIC allegedly violated that commitment with its regulatory seizure of the bank’s money. Accordingly, the bank is asking the court to order the return of all those funds.
The FDIC has countered by arguing that it has the legal right to hold the money until it assesses the bank’s share of the cost imposed on the regulator’s insurance fund. Regulators also have suggested that they have legitimate claims to justify their decision. SVB has challenged that suggestion, noting that the agency refuses to cite those claims.
If the court rules in SVB’s favor, it would not be the first time a bankruptcy judge has reversed a regulatory seizure. In May, the bankruptcy court ordered the FDIC to return tax refund checks worth $10 million to the failed bank.