Legal action has been taken in the collapse and shutdown of Silicon Valley Bank, as shareholders of SVB Financial Group (the parent company of the bank) have filed a class action lawsuit against the parent company, CEO, and CFO. The banking company was closed by financial regulators on March 10, 2023 due to liquidity crisis and systemic failure.
In the lawsuit filed at a Federal court in San Jose, California, shareholders allege that the CEO of SVB Financial Group, Greg Becker, and its CFO, Daniel Beck, concealed from both shareholders and the public the extent of the risks posed to the bank by rising interest rates and the increasing likelihood of a bank run.
The lead plaintiff in the shareholders’ class action lawsuit against SVB Financial Group’s CEO and CFO, Chandra Vanipenta, has alleged that the bank neglected to notify shareholders about how the increasing interest rates were endangering Silicon Valley Bank’s business model.
The lawsuit is seeking unspecified damages for SVB investors who held stock in the company between June 16, 2021, and March 10, 2023.
Why did Silicon Valley Bank collapsed ?
The banking industry was taken aback when, just two days prior to its closure, Silicon Valley Bank disclosed a loss of $1.8 billion after taxes from its investment sales. The bank also revealed that it had been attempting to secure additional capital in order to meet the rising demand for deposit withdrawals from its customers.
Silicon Valley Bank primarily serves the financial and banking requirements of tech and startup companies located in Silicon Valley. The bank had utilized the deposits and funds entrusted to them to invest in long-term bonds. However, with the Federal Reserve of the United States raising interest rates to curb inflation in the economy, long-term bonds became less appealing, leading to a decrease in their value.
As the value of Silicon Valley Bank’s bond investments plummeted, depositors became wary and began withdrawing their deposits in substantial amounts.
SVB, which was the 16th largest bank in the United States, with assets worth $209 billion and deposits worth $175.4 billion, struggled to meet the surging demands for deposit withdrawals. As a result, the bank experienced a period of liquidity crunch, prompting California State’s banking and financial regulators to intervene and take charge of the bank’s assets and liabilities.
At present, the FDIC has taken control of the bank, and it is under receivership. According to reports, depositors who had entrusted their funds to Silicon Valley Bank will receive the entire amount owed to them, irrespective of their deposit insurance status.