The Battle for Billions: How SVB Financial Trust’s Lawsuit Could Alter the Future of Banking Regulation

Silicon Valley Bank’s previous holding company, SVB Financial Trust, has been granted permission to sue the Federal Deposit Insurance Corporation (FDIC). On February 27, 2025, Judge Beth Labson Freeman denied the defense’s motion to dismiss the lawsuit, allowing SVB Financial Trust to proceed with its claim against the FDIC’s seizure of $1.93 billion in deposits [1]. This $1.93 billion, which SVB Financial is contesting, represents the amount that the plaintiffs allege was wrongfully taken by the governmental agency.

This court case could have wide-reaching ramifications for banking regulation, potentially setting legal limits on the FDIC’s authority, which serves as a crucial safeguard for public confidence in financial institutions. Should SVB Financial Trust prevail, the ruling may weaken the FDIC’s ability to act swiftly, risking significant financial stress in the event of another banking catastrophe.

The FDIC’s seizure of funds came in response to the collapse of Silicon Valley Bank in March of 2023, the largest bank failure since 2008. The run on the bank, fueled by tech startups' rush to withdraw their deposits, led to the bank’s insolvency. SVB had invested much of its deposits in low-yield treasury bonds with limited liquidity, forcing them to sell their bonds at a loss in a low-interest environment as widespread panic sparked among depositors at the bank [2].

To assuage the concerns of depositors at SVB and other similarly sized banks, the FDIC stepped in “to maintain stability and confidence in the banking system and stem the risk of contagion to other financial institutions” [3]. If more customers at other institutions had similarly feared losing their deposits, they might have also rushed to withdraw their funds, potentially triggering a domino effect of bank runs and financial instability.

Thus, to prevent this crisis, the FDIC covered all deposits at Silicon Valley Bank, even those above the standard $250,000 insurance limit. This helped insure over 90% of SVB’s deposits that fell outside of the typical FDIC insurance threshold [4]. 

Specifically, the FDIC is authorized to do this under the provision of the systemic risk exception. Under this provision, the FDIC Board of Directors and the Federal Reserve Board of Governors must recommend that the Treasury Secretary, in coordination with the President, raise the insurance limit [5]. This occurs when regulators fear that insuring only the standard amount will not prevent a broader financial collapse — which regulators worried about in this case.

SVB Financial Trust had also filed a lawsuit against First Citizens BancShares, a firm that bought many of SVB’s assets through an FDIC-arranged discounted transaction [6]. This shows that SVB Financial Trust still believes it has rights to the Silicon Valley Bank name, logo, and trademark as it seeks to challenge the FDIC asset sale ownership process.

At the same time, the FDIC is also taking legal action against 17 former SVB executives for “breaches of duty in mismanaging the Bank’s investment portfolios that exposed SVB to significant risks” [7]. This signals that the FDIC is increasingly willing to penalize individuals whose decisions lead to collapse, particularly when those decisions result in a loss for the department's Deposit Insurance Fund.

For regulators, this highlights the need for proper oversight, especially when mismanagement is a key factor in financial collapse [8]. In the case of the $200 billion firm SVB, the absence of robust control infrastructure and risk management strategies had dire consequences, ultimately leading to the bank’s downfall. As the Federal Reserve noted, “risk-management practices had not kept pace with its growth,” highlighting that the bank failed to mitigate risks [9].

If the court rules against the FDIC’s seizure of depositor funds, the agency’s broad emergency powers could be seriously challenged. The other court case surrounding trademark infringement could also shape the way the FDIC handles bank collapses and asset sales. A ruling in favor of SVB Financial Trust might establish a precedent that limits the FDIC’s authority to act decisively in future banking crises. Such a decision could undermine the agency's ability to manage future collapses effectively. This battle for billions may be even larger in scope than it seems.

Sources:

1. SVB Financial Trust v. Federal Deposit Insurance Corporation, No. 23-cv-06543-BLF (N.D. Cal. 2025)
2. The Silicon Valley Bank Collapse Explained (March 24, 2023), https://www.law.uw.edu/news-events/news/2023/svb-collapse
3. Martin J. Gruenberg, Recent Bank Failures and the Federal Regulatory Response (Mar. 27, 2023), https://www.fdic.gov/news/speeches/2023/spmar2723.html
4. Bobby Allyn & David Gura, The U.S. Takes Emergency Measures to Protect All Deposits at Silicon Valley Bank, NPR (Mar. 13, 2023), https://www.npr.org/2023/03/12/1162975615/the-u-s-takes-emergency-measures-to-protect-all-deposits-at-silicon-valley-bank.
5. 12  U.S.C. § 1823(c)(4)(G)
6. Jonathan Stempel, Silicon Valley Bank's former parent sues to reclaim tarnished brand (Mar. 5, 2025), https://www.reuters.com/legal/silicon-valley-banks-former-parent-sues-reclaim-tarnished-brand-2025-03-05/
7. Martin J. Gruenberg, Memorandum and Resolution on Request for Authority to Sue Six Former Officers and Eleven Former Directors of Silicon Valley Bank (Dec. 17, 2024), https://www.fdic.gov/news/speeches/2024/memorandum-and-resolution-request-authority-sue-six-former-officers-and-eleven
8. Lai Van Vo & Huong Thi Thu Le, From Hero to Zero: The case of Silicon Valley Bank, Journal of Economics and Business (Sept. 5, 2023), https://doi.org/10.1016/j.jeconbus.2023.106138
9. Id.