The 2023 collapse of Silicon Valley Bank remains a defining moment in modern US financial history. A recent court case has clarified responsibility for the bank’s near-overnight demise, which followed a rapid expansion in deposits from $50bn in 2018 to $200bn by 2021. SVB had invested customer cash into long-term bonds, including mortgage-backed securities, leading to $15bn in paper losses on its 'held-to-maturity' portfolio after interest rates spiked in 2022.

A subsequent bank run saw $42bn in deposits withdrawn in one day, prompting the FDIC to place the banking subsidiary into receivership. The holding company filed for bankruptcy. The court case centered on $1.7bn in claims over $2bn of deposits the holding company had at the bank unit.

The FDIC asserted 'set off rights' due to alleged fiduciary breaches, while SVB argued regulators had found no deficiencies in its controls. Supported by vulture funds that acquired $7bn in holding company bonds and preferred stock, SVB sought to recover the cash. However, a federal judge in California rejected SVB’s arguments, finding officers 'negligently caused billions of dollars in losses by their imprudent investment strategy that favoured yield over safety'.

The court agreed with the FDIC’s expert that mismanagement caused $4.5bn in economic losses, exceeding the holding company’s cash at the bank. The ruling echoed an earlier Federal Reserve review that found SVB breached long-term risk controls, with internal emails showing executives acknowledging the bank’s precarious position.