Investors Seek Billions From SVB’s Husk. Why Regulators Refuse to Pay

The dust had barely settled after Silicon Valley Bank’s collapse last year when savvy investors began lining up for a big payout, based on a hastily written government press release.

Now, in the ensuing legal fight, the Federal Deposit Insurance Corp. is nearing a high-stakes court ruling that could force the regulator to describe how it crafted an announcement that left it exposed to paying $2 billion from its main insurance fund. The money would go to the failed bank’s bankrupt parent and onward to creditors, at the expense of other big US banks.

At the center of the case is the FDIC’s emergency declaration last March that “all depositors of the institution will be made whole,” even if they were uninsured. One of the biggest turned out to be SVB’s parent, SVB Financial Group, whose stock and bond prices had collapsed.

If the FDIC is forced to fork out the $2 billion, some of the parent’s creditors stand to make a bundle. Recipients would include Pacific Investment Management Co., King Street Capital Management, Hudson Bay Capital Management, Appaloosa Management, Centerbridge Partners and Silver Point Capital, filings show.

But the agency has refused to pay up.

Now, in a volley of filings at federal court in California this month, the regulator is being pressed to hand over internal records detailing its decisions — raising potential political risks — while it also tries to get the case dismissed.

“If I were the FDIC I’d fight like hell,” said Konrad Alt, who advises financial firms and fintechs as co-founder of Klaros Group. “Maybe I’m going to lose in court, but I’d rather go down swinging.”

A spokesperson for the FDIC declined to comment on pending litigation.