The bankruptcy of Silicon Valley Bank (SVB) in the United States is escalating into a lawsuit battle. Shareholders claim they suffered losses because the bank did not disclose the unique risk of its asset structure being vulnerable to high interest rates.
On the 13th (local time), major foreign media reported that SVB shareholders have filed a class-action lawsuit against the management of SVB Financial Group, the bank's parent company.
On the same day, SVB shareholders filed a class-action complaint seeking damages against Greg Becker, CEO of SVB Financial Group, and Daniel Beck, CFO, at the federal court in San Jose, California.
The shareholders argued that the crisis stemmed from SVB’s unique characteristics, such as having less cash-equivalent assets and a higher proportion of securities investments compared to the average U.S. bank. They demanded compensation for unspecified losses suffered by SVB investors between January 16, 2021, and this month’s 10th.
In the complaint, they claimed that the management failed to disclose that the business foundation was vulnerable to rising interest rates and that the customer base was concentrated solely on startups, making SVB more vulnerable than other banks.
Unlike other large banks with diversified customer bases, SVB focused exclusively on startups, and its asset composition was centered on bond assets vulnerable to interest rate hikes. Most notably, only 12% of its deposits were insured, making it more susceptible to a large-scale bank run. Shareholders argue that the company did not warn of these risks in advance, resulting in their losses.
This lawsuit is the first to be filed since SVB’s collapse, and foreign media report that similar lawsuits are expected to follow.
During the pandemic, SVB invested a large inflow of deposits from the venture boom more heavily in interest rate-related assets such as U.S. Treasury bonds rather than loans. However, due to the sharp interest rate hikes starting last year, losses on held bonds increased, and deposit withdrawals accelerated, leading to a liquidity crisis and the bank’s closure.
The day before, U.S. financial regulators announced that to prevent SVB’s collapse from triggering a large-scale crisis like the 2008 financial crisis, they would guarantee all bank deposits in full regardless of insurance limits and provide loans to financial institutions facing liquidity shortages.
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