Silicon Valley Bank CEO and CFO sued
Greg Becker and Daniel Beck are accused of withholding information from shareholders
SVB (Silicon Valley Bank) CEO Greg Becker and CFO Daniel Beck were sued by the company’s shareholders. O SVB Financial Group, holding owner of the bank, was also prosecuted. The information is from Reuters.
They are accused of having hidden the real financial situation of the bank, which went bankrupt on Friday (10.Mar.2023).
The lawsuit was filed in the Federal Court in San Jose, California. In the lawsuit, shareholders said the bank failed to say how raising interest rates would damage its business model and make it worse off than banks with different customer bases. The process is led by shareholder Chandra Vanipenta.
The action seeks unspecified damages for SVB investors between June 16, 2021 and March 10, 2023.
understand the case
The collapse of SVB (Silicon Valley Bank) has begun on Wednesday (March 8) when the bank reported that it had recorded a loss of US$ 1.8 billion (R$ 9.9 billion) in the 1st quarter of 2023 by paying off US$ 21 billion in securities (R$ 109 billion) . The financial institution also said it planned to sell US$ 1.7 billion (R$ 8.8 billion) in shares.
The disclosures signaled that financial losses would bankrupt the company. The announcements also raised eyebrows among other investors. The result was a classic customer scramble to get the money out of the bank as quickly as possible. However, part of the withdrawn amount was invested in other, less liquid assets.
The investments were possible because, in 2020, because of the covid-19 pandemic, the Fed (Federal Reservethe US Central Bank) afrouxou rules and financial institutions were able to spend 100% of what they received on deposits from customers. With the pandemic, demand for loans dropped and banks began to buy assets with customer deposits. SVB was one of them.
After the announcement of losses on March 8, the institution was unable to meet withdrawal requests. Therefore, an intervention was necessary to avoid a case similar to the crisis of the subprimeem 2008.
On Friday (March 10), the California Department of Financial Protection and Innovation announced the closure of SVB.
The agency also appointed the FDIC (Federal Deposit Insurance Corp), created in 1933 at the height of the Great Depression to protect account holders and savers, to manage the situation and return money to customers and small businesses that have deposits with the institution as of 2nd fair (13.mar).
The FDIC works similarly to the Brazilian FGC (Credit Guarantee Fund).
In addition to the FDIC, the Fed announced on Sunday (March 12) the creation of a new funding program in the long term for banks to ensure the ability of financial institutions to pay their depositors. The US Treasury will make available up to US$ 25 billion from the Exchange Stabilization Fund for this purpose.
On Monday (March 13), US President Joe Biden spoke about the case. He said the country’s banking system is safe.
The US leader also stated that will hold the culprits accountable by the bankruptcy of US banks Silicon Valley Bank and Signature Bank. A last financial institution was closed on Sunday (12.mar) after presenting a systemic risk similar to SVB.
Watch Biden’s speech (5min5s):
In Brazil, the Minister of Finance, Fernando Haddad, said on Monday (13.Mar) that the BC (Central Bank) should take “some providence” regarding the SVB break.
He also stated that the federal government is in tune with Brazilian banks and the Central Bank to learn about risk perceptions for the Brazilian economy.
Read more about the SBV collapse and its aftermath: