SVB Financial Group, the former owner of Silicon Valley Bank (SVB), has taken legal action against the US Federal Deposit Insurance Corporation (FDIC) in an effort to recover over $1.9 bn. SVB Financial says that the FDIC violated US bankruptcy law by retaining $1.93 bn in cash after assuming control of SVB's banking arm earlier this year. The lawsuit, filed in New York, asserts that the FDIC's refusal to return the funds is hindering SVB Financial's restructuring efforts and causing ongoing harm to the company.
The FDIC, as of now, has not provided an immediate response to the lawsuit or any comment regarding the matter. The FDIC had taken over the assets of Silicon Valley Bank in March, which marked the largest bank collapse since the 2008 financial crisis when Washington Mutual faced a similar fate.
At the time of its acquisition, SVB stood as the 16th largest bank in the US, boasting assets and deposits of $209 bn and $175.4 bn, respectively. SVB primarily served the technology industry but experienced a significant decline when panicked depositors began withdrawing their funds following the bank's unexpected announcement of a $2.25 bn capital raise to strengthen its balance sheet.
This legal dispute between SVB Financial Group and the FDIC has raised concerns about the overall stability of the US banking sector. While several mid-size banks collapsed as a result of the crisis, the fallout did not extend beyond those institutions. The outcome of the lawsuit will have significant implications for both SVB Financial Group's restructuring efforts and the FDIC's handling of bank failures in the future.
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