FDIC to Take Legal Action against Former SVB Executives

FDIC Chair Martin J. Gruenberg endorsed a request for authority to sue six former officers and eleven former directors of Silicon Valley Bank ("SVB"), citing their role in the bank's collapse and the $23 billion in financial losses incurred by the Deposit Insurance Fund.

In a statement at the FDIC Board of Directors meeting, Mr. Gruenberg highlighted the findings from an FDIC investigation, including specific failures in SVB's risk management and decision-making during the relevant period. These included multiple breaches of fiduciary duty and risk management failures which exposed the bank to unnecessary risks. Mr. Gruenberg alleged:

• Mismanagement of the Held-to-Maturity Portfolio, asserting that SVB leadership concentrated investments in long-dated securities, exposing SVB to significant interest rate risk. He said this over-concentration was far greater than ordinary for peer banks and ignored key internal risk metrics designed to limit exposure.
• Hedge Removal in the Available-for-Sale Portfolio, asserting that SVB officers made the decision to eliminate interest rate hedges during a rising rate environment. He said this action left the bank unprotected from the sharp declines in asset values.
• Imprudent Dividend Payments, asserting that the SVB Board wrongly approved a dividend payment from SVB to its holding company, SVB Financial Group, even as the bank's financial condition deteriorated. 

Mr. Gruenberg emphasized the FDIC's responsibility to recover these losses, stating that "it is vital that Bank leadership be held accountable for their failures."