SVB Financial defeats FDIC effort to seize incoming tax refunds
2023.05.17 17:11
© Reuters. FILE PHOTO: Signs explaining Federal Deposit Insurance Corporation (FDIC) and other banking policies are shown on the counter of a bank in Westminster, Colorado November 3, 2009. REUTERS/Rick Wilking
By Dietrich Knauth
NEW YORK (Reuters) – A U.S. bankruptcy judge on Wednesday ordered the U.S. Federal Deposit Insurance Corporation to return $10 million in seized tax refund checks to SVB Financial, the bankrupt former parent of failed Silicon Valley Bank.
Judge Martin Glenn in Manhattan handed a victory to SVB Financial in broader dispute over FDIC’s efforts to recoup its costs in rescuing the failed Silicon Valley Bank, preventing the regulator from claiming future tax refunds that SVB Financial valued at $300 million.
FDIC sought to escrow those funds while the regulator determines whether they properly belong to the seized bank or the bankrupt parent company.
Glenn ruled that FDIC had no authority to intercept checks that were clearly written out to “SVB Financial.” He ordered FDIC to return the intercepted checks by Friday, and to send any future tax refunds checks to SVB Financial.
The FDIC took over Silicon Valley Bank on March 10 after depositors rushed to pull out their money in a bank run that also brought down Signature Bank (OTC:) and wiped out more than half the market value of several other U.S. regional lenders.
During the takeover, the FDIC also seized about $2 billion from SVB Financial’s own accounts at the bank, a move that has slowed SVB Financial’s progress in a bankruptcy proceeding to sell remaining assets like its venture capital investments.
The FDIC has said it is legally able to hold the seized funds while it determines how much SVB Financial should contribute to the bank takeover costs. The FDIC has estimated that the bank failure caused a $16 billion hit to its insurance fund.
FDIC argued that the tax refunds may be owed to the seized bank, which is now run by First Citizens BancShares, under a tax agreement between the bank and its former parent company.
But Glenn ruled that the tax agreement gave SVB Financial the responsibility to calculate and allocate any refunds owed to the bank, and did not allow FDIC or the seized bank’s new owner to unilaterally claim any portion of the refunds.
