The Federal Deposit Insurance Corporation (FDIC) filed a massive lawsuit today targeting 17 former executives and directors of Silicon Valley Bank (SVB), accusing them of gross negligence and fiduciary failures that triggered the bank’s spectacular March 2023 collapse.
The lawsuit names former CEO Gregory Becker, ex-CFO Daniel Beck, and 15 others. The FDIC, acting as SVB’s receiver, says the defendants ignored basic banking principles and internal risk policies. Instead, they allegedly chased profits and a higher stock price, exposing the bank to “catastrophic risks,” according to the court documents.
Risky bets and a $294 million dividend
At the heart of the FDIC’s allegations is a series of poor decisions tied to interest rates and liquidity management. Silicon Valley Bank was heavily reliant on long-term government bonds, including U.S. Treasuries and mortgage-backed securities, which were sensitive to rising interest rates.
When the Federal Reserve began hiking rates in response to inflation, these assets plummeted in value, slashing SVB’s ability to cover liabilities.
The FDIC also criticized a “grossly imprudent” $294 million dividend payment made to SVB’s parent company in December 2022. By draining the bank’s capital just three months before its collapse, the payment left SVB vulnerable at a time when it desperately needed cash to stay afloat.
Defendants fight back
Lawyers for Laura Izurieta, SVB’s former Chief Risk Officer, pushed back hard against the allegations. Izurieta left the bank in April 2022, nearly a year before the meltdown. Her legal team called her inclusion in the suit “outrageous,” claiming she provided sound advice on risk management before her departure.
Other defendants, including Becker, have not publicly commented, though Reuters reports that Becker’s legal team said he was traveling and unavailable.
Silicon Valley Bank’s downfall began on March 8, 2023, when the bank announced it had sold $21 billion worth of securities at a staggering $1.8 billion loss. It also shared plans to raise $2.25 billion through a stock sale to cover the hole in its balance sheet. That announcement set off a chain reaction of panic.
By March 9, venture capital firms and tech startups were withdrawing deposits at an alarming rate. Founders Fund, led by Peter Thiel, reportedly pulled all its deposits, and by the end of the day, SVB faced $42 billion in withdrawal requests—equal to a quarter of its total deposits.
The bank ended the day with a negative cash balance of nearly $1 billion, making regulatory intervention inevitable. On March 10, regulators seized SVB. The collapse stunned Silicon Valley, as SVB had long been the go-to bank.
Its demise also rattled financial markets including crypto, as an unusually high percentage of the bank’s deposits—over 90%—were uninsured.
Aftermath and acquisition by First Citizens
The FDIC claims it tried to act quickly and stabilize the situation, telling depositors that all funds, including those above the $250,000 insurance limit, would be accessible by March 13, 2023. But the damage was already done.
And SVB’s collapse triggered a domino effect, with Signature Bank and First Republic Bank also going under in the weeks that followed.
On March 26, North Carolina-based First Citizens BancShares stepped in to acquire most of SVB’s assets and deposits in a deal brokered by the FDIC. First Citizens took over tens of billions in loans but left $90 billion worth of securities under FDIC receivership.
At the time of its collapse, SVB had $209 billion in assets, making it the 16th largest bank in the United States. Its failure now sits alongside infamous banking disasters like Washington Mutual’s 2008 collapse.
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