Former SVB execs: Bank’s collapse fueled by panic, not mismanagement

A new legal filing from former Silicon Valley Bank executives is pushing back against the Federal Deposit Insurance Corp.’s claim that executive negligence led to the bank’s historic collapse in March 2023.

In a motion to dismiss the FDIC’s lawsuit, the former officers argue that the bank’s failure was the product of an extraordinary, social-media-driven bank run—not mismanagement.

The FDIC, acting as receiver for SVB, sued several former executives in January, alleging they breached their fiduciary duties by failing to manage the bank’s interest rate risk and asset-liability mismatch—two key issues that surfaced in the lead-up to SVB’s sudden demise. The lawsuit paints a picture of executives who either ignored or underestimated mounting risks in the bank’s investment portfolio, particularly in the face of a rapidly rising rate environment.

In their motion to dismiss the case, the officers—including former CEO Greg Becker—contend that the FDIC’s narrative ignores the unprecedented nature of the events that led to the bank’s failure. They point to the first-ever digitally coordinated bank run, fueled by viral social media posts and mass withdrawals by venture capital firms and their portfolio companies, as the true cause of the collapse.

The executives argue that SVB’s investment strategy, which included a substantial portfolio of long-dated U.S. Treasury and agency securities, was common among banks and had been deemed sound under normal economic conditions. Moreover, they note that the FDIC’s complaint lacks specificity in showing how each defendant breached their duty of care or loyalty.

They also challenge the idea that decisions were self-serving or made in bad faith. Rather, they claim their actions were aligned with the bank’s long-term interests and based on prevailing market norms at the time.