SVB Financial accuses FDIC of cutting it off from cash

SVB Financial Group, the parent company of the now-defunct Silicon Valley Bank, has claimed that the Federal Deposit Insurance Corporation cut off access to its $2 billion of deposits in the collapsed bank.

The FDIC immediately took control of SVB after its shutdown on March 10 due to liquidity issues. The agency guaranteed the uninsured deposits at SVB, including the deposits of its holding company.

SVB clients were able to access their money starting March 13. However, James Bromley, an attorney representing SVB Financial, said his client had lost access to its fund the day before it filed for Chapter 11.

"Not only has the bank been taken, all the cash has been taken."

James Bromley, Attorney Representing the SVB Financial Group

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Bromley told Judge Martin Glenn, who precedes the bankruptcy case, that SVB Financial was unable to pay the healthcare costs of its employees due to the loss of access to the fund.

The court filing listed the FDIC's "improper actions" against the Santa Clara-based holding company, including blocking a $250 million wire transfer, removing $19 million from an SVB Financial account and trying to claw back payments via SVB Financial's attorneys and financial advisers.

The FDIC responded to SVB Financial's accusation, saying that it froze all of the holding company's bank accounts at SVB as part of the agency's ongoing investigation of potential claims against the financial group. According to the FDIC, the action was legal and critical in stabilizing the lender's operations during the management transition.

Shareholders sued SVB Financial and its two executives last week, alleging that they concealed how hiking interest rates would leave SVB "particularly susceptible" to a bank run.

SVB implosion, banking crisis

SVB experienced a liquidity crunch as many of its clients, mostly startups, withdrew a large chunk of deposits to support their respective businesses. These startups had difficulty in financing due to rising interest rates. SVB attempted to raise capital by selling its assets, but high interest rates lowered their value by almost $2 billion.

The regional lender experienced a bank run on March 9. Customers withdrew $42 billion in just a day after many venture capitalists urged startups to take out their money from SVB.

The implosion of SVB triggered volatility in the U.S. banking sector. Financial authorities had to close down New York-based regional bank Signature just two days after SVB went down due to "systemic risks."

The Federal Reserve, supported by the Treasury Department, also established a new credit facility to help lenders manage their liquidity issues. Shares of regional and large banks plummeted in the week following the collapse as the market tried to predict if other banks would be affected by the collapse.

When the situation in the U.S. improved slightly, Credit Suisse in Switzerland raised concerns about its liquidity. The Swiss central bank attempted to save the large bank by offering a $54 billion liquidity assistance before deciding to arrange a buyout for Credit Suisse. Rival bank UBS purchased Credit Suisse at a discounted price of $3.23 billion.

Financial authorities in several countries, including the U.S. and Switzerland, joined hands to contain the effect of banking instability. They increased the frequency of dollar swaps between participating central banks to boost dollar liquidity in the global market starting this week.

As of now, the banking sector in the U.S. has shown improvement, with many banks closing higher on Wall Street on Tuesday. Investors are currently anticipating the result of the Federal Open Market Committee (FOMC) meeting, which will determine the upcoming rate increase.

The market expects the Fed to increase the interest rate by 25 basis points this month, a more dovish rate hike expectation than the 50-basis-point hike predicted earlier. The Fed will likely cut the benchmark rate near the end of the year, said analysts.