A U.S. judge has approved a bankruptcy plan for SVB Financial Group, the former parent of the now-defunct Silicon Valley Bank, paving the way for a significant legal dispute with the Federal Deposit Insurance Corporation (FDIC). This legal confrontation will unfold in a California federal court, with the FDIC accused of unlawfully seizing $1.9 billion from SVB Financial’s accounts following the bank’s collapse in 2023, one of the largest failures in U.S. banking history.
The approved bankruptcy plan involves the establishment of a trust to pursue litigation against the FDIC. SVB Financial argues that the FDIC’s seizure of funds was unjustified, as the agency invoked a “systemic risk” exemption to protect all deposits at Silicon Valley Bank, including those exceeding the standard $250,000 insurance limit. The FDIC contends that its protection did not extend to the parent company’s accounts and that the seized funds were necessary to cover the costs of rescuing the bank.
The outcome of this litigation will significantly impact the distribution of assets to SVB Financial’s senior bondholders, who are owed $3.3 billion. Depending on the court’s decision, bondholders could receive between 41% and 96% of their claims. The bondholder list includes major firms such as MFN Partners, Pacific Investment Management Company, Bank of America Securities, JP Morgan Securities, and King Street Capital.
As part of its restructuring efforts, SVB Financial has been actively selling assets, including spinning off its venture capital and investment banking units, in a bid to satisfy creditor claims and streamline its remaining operations.
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