Parent company of Silicon Valley Bank files for bankruptcy

A sign for a Silicon Valley Bank private branch is displayed in San Francisco, Tuesday, March 14, 2023. (AP Photo/Jeff Chiu)

NEW YORK — The parent of Silicon Valley Bank filed for Chapter 11 bankruptcy a week after the tech-focused bank failed and was seized by the U.S. government.

The filing from SVB Financial Group on Friday is not a surprise, with much of the company now under the control of U.S. banking regulators. During the 2008 financial crisis, the parent companies of failed banks Washington Mutual and IndyMac -- filed for bankruptcy protection in the days after their banking operations failed.

Also, Silicon Valley Bank along with its CEO and its chief financial officer were targeted this week in a class action lawsuit that claims the company didn't disclose the risks that future interest rate increases would have on its business.

SVB Financial Group is no longer affiliated with Silicon Valley Bank after its seizure by the Federal Deposit Insurance Corporation. The bank's successor, Silicon Valley Bridge Bank, is being run under the jurisdiction of the FDIC and is not included in the Chapter 11 filing.

The bankruptcy filling by SVB Financial Group will create a legal battle over the bank's remaining assets, between the creditors of the holding company and bank regulators who are looking to make depositors whole. SVB Financial Group believes it has approximately US$2.2 billion of liquidity. It also said it also has other valuable investment securities accounts and other assets that are being considered for sale.

The Wall Street Journal reported that a group of distressed debt investors -- mostly hedge funds -- bought up the bonds of Silicon Valley Bank's holding company in a bet that that there will be some proceeds for bondholders after the bankruptcy process is completed.

"The Chapter 11 process will allow SVB Financial Group to preserve value as it evaluates strategic alternatives for its prized businesses and assets, especially SVB Capital and SVB Securities," William Kosturos, Chief Restructuring Officer for SVB Financial Group, said in a prepared statement Friday.

SVB Capital is the company's venture capital and private credit fund. SVB Securities is a regulated broker-dealer. Both continue to operate and have sources of funding, the company said.

The shuttering of Silicon Valley Bank last Friday and of New York's Signature Bank two days later has revived bad memories of the financial crisis that plunged the United States into the Great Recession about 15 years ago.

Over the weekend the federal government, determined to restore public confidence in the banking system, moved to protect all the banks' deposits, even those that exceeded the FDIC's US$250,000 limit per individual account.