2022 was full of cryptocurrency crashes, stock failures, and economic volatility. While talks of a recession have carried over into 2023, the financial industry is experiencing a new type of turmoil brought on by complications with some of its longest-standing participants: banks. Rising interest rates put some of the world’s most influential institutions at risk, and ultimately propelled Silicon Valley Bank into the largest US bank failure since Washington Mutual in 2008. And just as it was then, the industry is likely to be embroiled in a slew of litigation concerning the collapse for years to come. Let’s take a quick look at what is happening in the banking space, and how engaging with experts now can mitigate risk and inform an effective litigation strategy.
The Collapse and Following Conflicts
As SVB attempted to tame inflation, their U.S. government bonds dropped in value, prompting them to sell all available securities – for a $1.8 billion loss. Depositors panicked, a bank run ensued, and on March 10th after just 48 hours, regulators shut down the bank. SVB is now being investigated by the SEC and DOJ, with additional disputes already developing with customers, investors, and counter-parties.
Since SVB’s collapse, Signature Bank collapsed, First Republic Bank has been bailed out, and Credit Suisse was purchased via an emergency sale to UBS. There are already talks of impending litigation against the Swiss banking giant; numerous bondholders have reported considerations of legal action after $17 billion in additional tier-one (AT1) bonds were lost in the takeover.
Now, bank customers are attempting to mitigate their risk in the volatile market by pulling funds from smaller institutions and placing them with larger banks with more capital. This is forcing the little guys to look for cash infusions to pay customers their withdrawals, borrowing more than a record-breaking $150 million from the Federal Reserve’s emergency facility.
Litigation to Come
With the dust just now starting to settle from these initial crashes, the current legal landscape regarding these banking conflicts is actively developing. While securities class actions and federal investigations are already underway, WIT anticipates more litigation to ensue against these banks and those to follow. And for each bank that fails or is taken over, there is a strong possibility for shareholder suits, SEC/DOJ investigations, counter-party suits, customer suits to recover lost investments, and criminal actions for securities fraud, insider trading, and/or embezzlement.
With an additional 190 banks in danger of failure, imagine the catastrophe that would ensue if more uninsured depositors withdrew their funds. Engaging with financial experts now to can help financial institutions assess risk and defend themselves from government and private actions. WIT has created teams of banking professionals who are well acquainted with all aspects of banking operations, including…
- Former bank chief compliance officers who can speak to the minimum standard of care in the banking industry relating to managing risk and investment strategies (e.g. government bonds, crypto, etc.)
- Prominent academic experts that study the banking industry, the management of capital, liquidity strategies, and counterparty relationships
- Former bank executives that have overseen how institutions invested customer/investor funds
- Insider trading experts to compare insider trades to the public stock trading volume
- Due diligence experts to opine on what investors knew or should have known about the risks
- Bank monitors with experience supervising bank operations under regulatory or criminal settlements
- Former FDIC and SEC regulators with experience overseeing bank charters, ensuring the overall soundness of banking systems, and opining on issues regarding fiduciary responsibilities
In addition to helping create a successful litigation strategy, engaging with WIT’s banking experts before conflicts even arise can assist you in establishing a strong risk and compliance program, protecting you from future disputes.
Stay a step ahead of the unfolding banking crisis. Reach out to WIT for the best experts to inform your litigation strategy. Our expert teams were specifically built to address the needs of the banking industry and the lawyers that represent it.