FDIC hit with $1.9 billion suit from SVB Financial

SVB Financial Group, the parent holding company of failed Silicon Valley Bank, has filed a lawsuit against the Federal Deposit Insurance Corp. in an attempt to recover $1.9 billion in cash that the regulator has withheld since taking over the bank in March.

The bankruptcy filing by SVB Financial Group came after Silicon Valley Bank experienced a $42 billion bank run, resulting in the bank becoming a ward of the FDIC. SVB Financial Group argues that the retention of the cash by the FDIC is in violation of U.S. bankruptcy law.

The cash balance, held in an account at the banking subsidiary, is considered the most significant asset of the SVB Financial estate. The company claims that the lack of access to these funds is hindering its ability to reorganize and causing continuous harm. If the FDIC does not return the funds, SVB Financial may have to seek external financing, a process that could be costly and uncertain.

The dispute revolves around who has the right to possess the cash during this interim period, with both parties potentially submitting claims to assert their rights. The FDIC has previously argued that it may have offset rights to claim the parent company's cash to satisfy liabilities. SVB Financial is seeking clarity on the grounds the FDIC may assert these rights.

In an unrelated move, SVB Financial recently announced a deal to sell its securities and investment banking business for approximately $81 million to a buyout group led by SVB Securities CEO Jeffrey Leerink and his management team. The payout comprised $55 million in cash, and clearing around $26m of SVB Financial Group’s debt.

The FDIC has not yet responded to the lawsuit.

[More: Justice Department and SEC probe Goldman role in SVB]