SAN FRANCISCO—An FDIC banking expert told a federal judge Wednesday that Silicon Valley Bank's leadership ignored basic principles of prudent banking, testifying that executives knowingly allowed the bank to take excessive interest-rate and liquidity risks that ultimately led to its historic 2023 collapse, Law360 reported.
Testifying during the bench trial in the FDIC's multibillion-dollar negligence lawsuit against former SVB executives and directors, the agency's expert said bank officers were aware the institution was assuming excessive risk but failed to take corrective action. Emphasizing how far SVB had strayed from accepted banking practices, the witness remarked, "I would've been fired" had he managed his own bank's balance sheet in the same manner, according to Law360.
The testimony supports the FDIC's allegations that former CEO Greg Becker, former CFO Daniel Beck and other former officers and directors breached their fiduciary duties by allowing SVB to build an enormous portfolio of long-duration securities without adequately hedging against rising interest rates, while also failing to maintain sufficient liquidity. The FDIC is seeking billions of dollars in damages tied to the bank's collapse, Reuters noted.
Defense attorneys have argued that SVB's management made reasonable business judgments based on economic conditions at the time and could not have foreseen the unprecedented speed of the depositor run that unfolded in March 2023. During earlier testimony this week, former SVB executives acknowledged the bank took on significant risks but contended those risks were understood and considered manageable under then-existing assumptions, Law360 said.
Silicon Valley Bank, which held approximately $209 billion in assets when it failed, collapsed after rapidly rising interest rates slashed the value of its securities portfolio and sparked a massive run by largely uninsured depositors. The Federal Reserve later concluded the failure was a "textbook case of mismanagement," citing the bank's inability to manage basic interest-rate and liquidity risks, while the FDIC's lawsuit similarly alleges that management ignored prudent banking standards and the bank's own internal risk policies.