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SVB Financial Takes Legal Action Against FDIC Over $1.93B Rescue Seizure

Embattled SVB Financial Group is suing the FDIC, aiming to recover $1.93 billion seized during a bank rescue operation.

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SVB Financial Files Lawsuit to Retrieve Seized Funds

SVB Financial Group, currently bankrupt, has initiated legal proceedings against the US Federal Deposit Insurance Corp (FDIC). The firm is seeking to recover $1.93 billion confiscated by the FDIC during its takeover of Silicon Valley Bank in March. This information was revealed in a bankruptcy court filing on Sunday.

Impact of Seized Funds on SVB Financial's Reorganization

SVB Financial has indicated that its restructuring is affected due to the inability to access these funds. The seized sum was projected to generate over $100 million in annual interest. In the absence of this, the group might have to opt for "debtor-in-possession" financing, an uncertain and expensive avenue.

Controversy between FDIC and SVB Financial over Bank Rescue Costs

A contentious battle is underway between the FDIC and SVB Financial over the regulator's attempt to recoup the Silicon Valley Bank rescue costs. Silicon Valley Bank collapsed in March following a run on its deposits. This crisis was the catalyst for the worst US banking crisis in 15 years, contributing to the failure of two other regional banks.

FDIC's Role in the Silicon Valley Bank's Fall and SVB Financial's Complaint

In response to the crisis, the FDIC assured all deposits of Silicon Valley Bank and later facilitated a buyout by regional lender First Citizens BancShares. SVB Financial accuses the FDIC of coercing it into retaining its cash in the failed bank before confiscating it. Although the FDIC had guaranteed all deposits to prevent a run on the bank, it exempted SVB Financial's funds from this assurance, as per the complaint.

SVB Financial's Bankruptcy and Sale of its Investment Banking Unit

In the aftermath of these events, SVB Financial declared bankruptcy and agreed last month to sell its investment banking division to a consortium led by its chief executive. The firm is still considering alternatives for its venture capital and credit investment division.

FDIC's Stance on the Seized Funds and SVB Financial's Rescue Costs

According to the FDIC, the failure of Silicon Valley Bank depleted its insurance fund by $16 billion. The FDIC insists it is within its legal rights to retain the seized funds while calculating SVB Financial's share of the rescue expenditure. The FDIC alleges it has claims against SVB Financial to validate its refusal to return the seized funds, although the company states these have not been identified despite multiple opportunities. The FDIC has refrained from commenting on this matter.

US Bankruptcy Judge's Order for Partial Refund

In May, a US bankruptcy judge mandated the FDIC to return $10 million in confiscated tax refund checks to SVB Financial.