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Silicon Valley Bank

From Justapedia - Reading time: 15 min

Silicon Valley Bank
IndustryFinancial services
Founded1983; 42 years ago (1983)
Founders
  • Bill Biggerstaff
  • Robert Medearis
DefunctMarch 10, 2023 (2023-03-10)
FateFailed after a bank run on its deposits and taken into receivership by the Federal Deposit Insurance Corporation
HeadquartersSanta Clara, California, U.S.
Key people
RevenueIncrease US$7.40 billion (2022)
Decrease US$1.51 billion (2022)
Total assetsIncrease US$211.8 billion (2022)
Total equityDecrease US$16.0 billion (2022)
Number of employees
8,553 (December 2022)
Capital ratioTier 1 15.26% (2022)
Websitesvb.com
Footnotes / references
[1]
Silicon Valley Bank in Tempe, Arizona

Silicon Valley Bank (SVB) was a commercial bank headquartered in Santa Clara, California. SVB was the 16th largest bank in the United States at the time of its failure on March 10, 2023 and was the largest bank by deposits in Silicon Valley.[2][3] It was a subsidiary of SVB Financial Group (formerly Silicon Valley Bancshares),[1] a bank holding company.[1]

The bank's customers were primarily in the technology, life science/healthcare, private equity/venture capital and premium wine industries.[1][4][5] As of December 31, 2022, 56% of its loan portfolio were loans to venture capital firms and private equity firms, secured by their limited partner commitments and used to make investments in private companies, 14% of its loans were mortgages to high-net-worth individuals, and 24% of its loans were to technology and health care companies, including 9% of all loans which were to early and growth-stage startup companies.[6]

Via its SVB Capital division, it managed $9.5 billion in funds of both clients and the bank that was invested in venture capital funds.[1][7] SVB Securities provided investment banking services to companies in the technology and healthcare industries.[1]

On March 10, 2023, after a bank run on its deposits, it failed and was taken into receivership by the Federal Deposit Insurance Corporation (FDIC) in the second-largest bank failure in U.S. history.[8] Its insured deposits were moved to a new entity created by the FDIC, called Deposit Insurance National Bank of Santa Clara to protect depositors.[8][9][10][11]

The bank operated from offices in the United States, India, the United Kingdom, Israel, Canada, China, Germany, Hong Kong, Ireland, Denmark, and Sweden.[1][12][13]

History[edit | edit source]

Initial years (1983–1994)[edit | edit source]

Silicon Valley Bank (SVB) was founded as Silicon Valley Bancshares in 1983 by Bill Biggerstaff and Robert Medearis, who came up with the idea over a poker game.[14] Its first office opened in 1983 on North First Street in San Jose.

The bank’s main strategy was collecting deposits from businesses financed through venture capital. It then expanded into banking and financing venture capitalists themselves, and added services to allow the bank to keep clients as they matured from their startup phase.[15]

SVB merged with National InterCity Bancorp in 1986 and opened an office in Santa Clara.[6] In 1988, the bank holding company became a public company via an initial public offering, raising $6 million.[6] It opened its first office on the east coast in 1990, near Boston, to serve the Massachusetts Route 128 tech corridor.

During its early years the bank did a substantial real estate loan business, making up 50% of its portfolio in the early 1990s. A slump in the California real estate market resulted in a $2.2 million loss for the bank in 1992, and by 1995 the portfolio percentage had fallen to 10%. In 1993, John C. Dean was appointed CEO, with founding CEO Roger V. Smith becoming Vice Chairman.[16][17] The bank added a winery lending business in 1994.[18]

Expansion (1995–2022)[edit | edit source]

The wave of computer technology startups during the dot-com bubble provided an influx of business for the bank, which was noted for its willingness to lend to venture-stage companies that were not yet profitable. Among its approximately 2,000 clients in 1995 were networking innovators Cisco Systems and Bay Networks.[16] That year, the bank moved its headquarters from San Jose to Santa Clara.[16] The holding company's stock price soared through the bubble but fell 50% when the bubble burst.[19] The bank continued to add branches in technology hubs across the country and reincorporated its holding company in Delaware in 1999.[1][20] Ken Wilcox became CEO in 2000[21] and chose to continue the company's niche focus on technology companies rather than diversifying into a broader commercial bank.[20]

The company's investment banking arm, SVB Securities, expanded its business with the 2001 acquisition of Palo Alto Alliant Partners for $100 million.[22] In 2002 it formally entered the private banking business, building on prior experience and relationships with wealthy venture capitalists and entrepreneurs.[23] It announced an international expansion drive in 2004, with new operations in Bangalore, London, Beijing and Israel.[20]

During the 2007–2008 financial crisis, SVB Financial received a $235 million investment from the federal government in exchange for preferred stock and warrants under the Troubled Asset Relief Program.[24] Over the course of two years it paid $10 million in dividends to the U.S. Treasury, then used the proceeds of a $300 million stock sale to buy back the government's interest.[25] Greg Becker replaced Wilcox as CEO in April 2011.[21]

SVB partnered with Shanghai Pudong Development Bank (SPDB) in 2012 to create a separate Shanghai-based bank that would lend to local technology startups.[26] The new bank, owned 50–50 by the two companies, received approval from Chinese bank regulators to operate in renminbi (RMB), making it one of a handful of American-owned banks permitted to do so.[27]

In 2015 the bank stated that it served 65% of all U.S. startups. Its new offerings at the time included syndicated loans and foreign currency management, and it stood out as the only financial institution working with virtual currency startups.[19]

Collapse[edit | edit source]

Main article: Collapse of Silicon Valley Bank

Losses[edit | edit source]

The bank's deposits increased from $62 billion in March 2020 to $124 billion in March 2021, benefitting by the impact of the COVID-19 pandemic on science and technology. Most of these deposits were invested in long-term bonds as the bank sought a higher return on investment than available on shorter-term bonds.[28] These long-term bonds fell in value as interest rates rose during the 2021-2023 inflation surge and they became less attractive as investments.[29] As of December 31, 2022, SVB had mark-to-market accounting unrealized losses in excess of $15 billion for securities held to maturity.[28] At the same time, startup companies withdrew deposits from the bank to fund operations as private financing became harder to come by. To raise needed cash to fund the withdrawals, by March 8, the bank sold all of its available-for-sale securities at a US$1.8 billion realized loss.[30] Some banking experts said that the bank would have managed its risks better had it not been for the Economic Growth, Regulatory Relief and Consumer Protection Act, enacted in 2018 and supported by SVB CEO Greg Becker, which reduced the frequency and number of scenarios of required stress testing implemented under the Dodd–Frank Wall Street Reform and Consumer Protection Act for banks with under $250 billion in assets.[31]

Instability[edit | edit source]

In the week before the collapse, Moody's Investors Service reportedly informed SVB Financial, the bank's holding company, that it was facing a potential downgrade of its credit rating because of its unrealized losses.[28] On March 8, 2023, SVB announced it had sold $21 billion worth of its investments, borrowed $15 billion, and would hold an emergency sale of its stock to raise $2.25 billion.[28] Despite the steps taken by the bank, Moody's downgraded SVB on March 8.[28][32] Investors at several venture capital firms, including Peter Thiel's Founders Fund,[33] urged their portfolio companies to withdraw their deposits from the bank.[34] On March 9, customers withdrew $42 billion, leaving the bank with a negative cash balance of about $958 million.[35] The value of the company's shares plummeted until a trading halt was implemented on the morning of March 10.[36][37][38][39][40]

Receivership[edit | edit source]

The FDIC was appointed as receiver of the seized assets and liabilities from Silicon Valley Bank.

On the morning of March 10, 2023, agents from the Federal Reserve and the FDIC arrived at the offices of SVB to assess the company's finances.[41] Several hours later, the California Department of Financial Protection and Innovation (DFPI) issued an order taking possession of SVB,[42] citing inadequate liquidity and insolvency,[43] and appointed the FDIC as receiver.[44][45] The FDIC then established the Deposit Insurance National Bank of Santa Clara to re-open the bank's branches the following Monday and enable access to insured deposits.[8][46][47][48] The failure of SVB was the largest of any bank since the 2007–2008 financial crisis and the second-largest in U.S. history.[49]

Uninsured deposits represented 89% of total deposits at the bank;[50] however, Moody's Investor Service reported on March 10, that it expected a recovery rate for uninsured depositors of 80-90%.[51]

The Bank of England issued a statement that it sought a court order to place the United Kingdom subsidiary of the bank into a Bank Insolvency Procedure.[52][53] Shanghai Pudong Development Bank issued a statement that its joint operations with SVB were not affected by the collapse.[54]

Impact[edit | edit source]

The collapse of SVB has caused a minor ripple effect among some tech startups, in particular cryptocurrency-related companies.[55][56][57] In a Securities and Exchange Commission (SEC) filing, streaming media company Roku, Inc. revealed that around a quarter of the company's cash reserves—US$487 million—were held by SVB.[58] Other companies affected by the collapse include video game developer Roblox Corporation and video hosting service Vimeo.[59] Many startups were unable to retrieve money, resulting in companies taking out loans to make payroll.[57] Circle, the issuer of USD Coin (USDC), attested that SVB is one of the six banking partners used by the company to manage its cash reserves for USDC.[60]

Vox Media had a "substantial concentration of cash" at the bank.[57] The California wine industry was also affected by SVB's collapse, as it was "the leading bank for California wineries".[61]

Market capitalization of U.S. banks lost a combined US$100 billion in two days and European banks lost US$50 billion.[62] Several banks, such as First Republic Bank and Western Alliance Bancorporation, issued press releases seeking to calm investors.[63][64] Regulators said U.S. banks had unrealized losses totaling more than $620 billion on their securities.[65] Despite this, banking experts believe that other banks will remain stable as SVB was overly specialized in providing banking to a risky sector of the economy, and financial regulations have strengthened since the 2008 recession.[66]

References[edit | edit source]

  1. ^ a b c d e f g h "SVB Financial Group 2022 Annual Report (Form 10-K)". U.S. Securities and Exchange Commission. March 1, 2022. Archived from the original on March 10, 2023. Retrieved March 10, 2023.
  2. ^ "Large Commercial Banks". Federal Reserve..
  3. ^ "Deposit Market Share Report". Federal Deposit Insurance Corporation.
  4. ^ Reckard, E. Scott (August 8, 2015). "At Silicon Valley Bank, risky tech start-ups are lucrative business". Los Angeles Times. Archived from the original on May 20, 2017.
  5. ^ Soper, Taylor (January 30, 2019). "Lighter Capital partners with Silicon Valley Bank to offer startups debt financing and banking services". GeekWire. Archived from the original on March 7, 2019.
  6. ^ a b c Kokalitcheva, Kia (March 11, 2023). "The rise and stunning fall of Silicon Valley Bank". Axios.
  7. ^ Murphy, Richard McGill (October 22, 2012). "Silicon Valley Bank: The bank for startups". Fortune. Archived from the original on June 20, 2017.
  8. ^ a b c "FDIC Creates a Deposit Insurance National Bank of Santa Clara to Protect Insured Depositors of Silicon Valley Bank, Santa Clara, California" (Press release). Washington: Federal Deposit Insurance Corporation. March 10, 2023. Archived from the original on March 10, 2023. Retrieved March 10, 2023.
  9. ^ Pound, Jesse. "Silicon Valley Bank is shut down by regulators, FDIC to protect insured deposits". CNBC. Archived from the original on March 10, 2023. Retrieved March 10, 2023.
  10. ^ Levin, Benjamin (March 9, 2023). "Silicon Valley Bank Fails as FDIC Takes Over, Appoints Receiver". Bloomberg Law. Archived from the original on March 10, 2023. Retrieved March 10, 2023.
  11. ^ Cimilluca, Rachel Louise Ensign, Corrie Driebusch and Dana (March 10, 2023). "Silicon Valley Bank Closed by Regulators". The Wall Street Journal. Archived from the original on March 10, 2023. Retrieved March 10, 2023.
  12. ^ "Silicon Valley Bank Opens in Canada" (Press release). PR Newswire. March 4, 2019. Archived from the original on April 1, 2020. Retrieved January 9, 2020.
  13. ^ "SVB Financial Group Expands IT and Engineering Team to Support Growth of the Innovation Economy" (Press release). PR Newswire. January 10, 2019. Archived from the original on March 10, 2023. Retrieved January 9, 2020.
  14. ^ "Silicon Valley Bank Celebrates 20 Years of Dedication to Entrepreneurs" (Press release). Silicon Valley Bank. October 17, 2003. Archived from the original on December 18, 2003. Retrieved March 11, 2023.
  15. ^ Rooney, Ben (November 14, 2012). "Microsoft's Karia Jumps Ship to Silicon Valley Bank". The Wall Street Journal. Archived from the original on September 26, 2017.
  16. ^ a b c Sinton, Peter (May 22, 1995). "High-Tech Bank Loves Startups / Silicon Valley Bancshares makes money by serving young firms". San Francisco Chronicle. Archived from the original on June 16, 2020.
  17. ^ Schubarth, Cromwell (June 1, 2015). "CEO Greg Becker on Silicon Valley Bank's bubble-proof growth". American City Business Journals. Archived from the original on September 27, 2017.
  18. ^ Marcus, David (August 11, 2015). "Silicon Valley Bank Plays Matchmaker Between Tech and Wine". TheStreet.com.
  19. ^ a b Popper, Nathaniel (April 1, 2015). "Silicon Valley Bank Strengthens Its Roots". The New York Times. Archived from the original on April 1, 2020.
  20. ^ a b c Lacy, Sarah (September 12, 2004). "Silicon Valley Bank extends reach to Bangalore, London". American City Business Journals. Archived from the original on September 27, 2017.
  21. ^ a b Calvey, Mark (December 18, 2009). "Silicon Valley Bank's parent to repay all its $235M in TARP money". American City Business Journals. Archived from the original on September 27, 2017.
  22. ^ "Silicon Valley Bank to acquire Alliant Partners". American City Business Journals. August 17, 2001. Archived from the original on February 22, 2004.
  23. ^ Lacy, Sarah (August 17, 2003). "Silicon Valley Bank targeting San Jose for private banking". American City Business Journals. Archived from the original on September 27, 2017.
  24. ^ "SVB FINANCIAL GROUP RECEIVES PRELIMINARY APPROVAL TO PARTICIPATE IN TREASURY'S TARP CAPITAL PURCHASE PROGRAM" (Press release). U.S. Securities and Exchange Commission. December 3, 2008.
  25. ^ Calvey, Mark (December 18, 2009). "Silicon Valley Bank's parent to repay all its $235M in TARP money". American City Business Journals. Archived from the original on September 27, 2017.
  26. ^ Muncaster, Phil (August 20, 2012). "Silicon Valley comes to China to spur tech innovation". The Register. Archived from the original on September 26, 2017. Retrieved September 11, 2017.
  27. ^ "Silicon Valley Bank's Joint Venture in China Receives License to Transact in Local Currency" (Press release). PR Newswire. August 6, 2015. Archived from the original on October 17, 2017. Retrieved October 17, 2017.
  28. ^ a b c d e Chappatta, Brian (March 10, 2023). "SVB's 44-Hour Collapse Was Rooted in Treasury Bets During Pandemic". Bloomberg. Retrieved March 11, 2023.
  29. ^ Giang, Vivian (March 10, 2023). "Silicon Valley Bank Collapse: What We Know". The New York Times. Retrieved March 10, 2023.
  30. ^ Son, Hough; Goswami, Rohan; Vanian, Jonathan (March 10, 2023). "Here's how the second-biggest bank collapse in U.S. history happened in just 48 hours". CNBC. Retrieved March 10, 2023.
  31. ^ Flitter, Emily; Copeland, Rob (March 10, 2023). "Silicon Valley Bank Fails After Run on Deposits". The New York Times. ISSN 0362-4331.
  32. ^ Fox, Megan; Cetina, Jill (March 8, 2023). "Moody's downgrades SVB Financial (senior unsecured to Baa1 from A3); outlook negative" (Press release). New York: Moody's Investors Service.
  33. ^ Roof, Katie; Tan, Gillian (March 9, 2023). "Peter Thiel's Founders Fund Advises Companies to Withdraw Money From SVB". Bloomberg News. Retrieved March 10, 2023.
  34. ^ Miller, Hannah (March 10, 2023). "SVB Races to Prevent a Bank Run as Funds Advise Pulling Cash". Bloomberg Law. Archived from the original on March 10, 2023. Retrieved March 10, 2023.
  35. ^ Hewlett, Clothilde V. (March 10, 2023). "In re Silicon Valley Bank: Order taking possession of property and business" (PDF). California Department of Financial Protection and Innovation. Archived (PDF) from the original on March 10, 2023. Retrieved March 10, 2023.
  36. ^ Pound, Jesse (March 10, 2023). "Shares of SVB Financial fall 60% as tech-focused bank looks to raise more cash". CNBC. Archived from the original on March 9, 2023. Retrieved March 10, 2023.
  37. ^ "Silicon Valley Bank shares plunge on stock-sale plan to stem cash burn". Reuters. Archived from the original on March 9, 2023. Retrieved March 9, 2023.
  38. ^ Griffith, Erin; Copeland, Rob (March 8, 2023). "Silicon Valley Bank's Financial Stability Worries Investors". The New York Times. Retrieved March 10, 2023.
  39. ^ Rees, Kit; Turner, Matt (March 10, 2023). "SVB Shares Halted for Pending News After Sinking Another 69%". Bloomberg. Archived from the original on March 10, 2023. Retrieved March 10, 2023.
  40. ^ "SVB in talks to sell itself; shares halted after tumbling 66% in premarket trading". The Economic Times. March 10, 2023. Archived from the original on March 10, 2023. Retrieved March 10, 2023.
  41. ^ Beyoud, Lydia; Johnson, Katanga (March 10, 2023). "US Regulators Descend on Silicon Valley Bank to Assess Its Finances". Bloomberg News. Retrieved March 10, 2023.
  42. ^ Hewlett, Clothilde V. (March 10, 2023). "In re Silicon Valley Bank: Order taking possession of property and business" (PDF). California Department of Financial Protection and Innovation. Archived (PDF) from the original on March 10, 2023. Retrieved March 10, 2023.
  43. ^ Pollard, Amelia (March 10, 2023). "Silicon Valley Bank Collapses in Biggest Failure Since 2008". Bloomberg Law. Archived from the original on March 10, 2023. Retrieved March 10, 2023.
  44. ^ Smith, Elizabeth (March 10, 2023). "California Financial Regulator Takes Possession of Silicon Valley Bank" (Press release). San Francisco: California Department of Financial Protection and Innovation. Retrieved March 10, 2023.
  45. ^ Morrow, Allison; Egan, Matt (March 10, 2023). "Silicon Valley Bank collapses after failing to raise capital". CNN. Retrieved March 10, 2023.
  46. ^ Pound, Jesse. "Silicon Valley Bank is shut down by regulators, FDIC to protect insured deposits". CNBC. Archived from the original on March 10, 2023. Retrieved March 10, 2023.
  47. ^ Levin, Benjamin (March 9, 2023). "Silicon Valley Bank Fails as FDIC Takes Over, Appoints Receiver". Bloomberg Law. Archived from the original on March 10, 2023. Retrieved March 10, 2023.
  48. ^ Cimilluca, Rachel Louise Ensign, Corrie Driebusch and Dana (March 10, 2023). "Silicon Valley Bank Closed by Regulators". The Wall Street Journal. Archived from the original on March 10, 2023. Retrieved March 10, 2023.
  49. ^ English, Angela Palumbo, Karishma Vanjani, Carleton. "Silicon Valley Bank Shut Down, Biggest Bank to Fail Since Financial Crisis". MarketWatch. Archived from the original on March 10, 2023. Retrieved March 10, 2023.
  50. ^ French, David; Wang, Echo; John, Alun (March 10, 2023). "Silicon Valley Bank is largest failure since financial crisis, billions stranded". Reuters. Archived from the original on March 11, 2023. Retrieved March 10, 2023.
  51. ^ Fox, Megan; et al. (March 10, 2023). "Moody's downgrades SVB Financial Group (senior unsecured to C from Baa1) and will withdraw the ratings" (Press release). New York: Moody's Investors Service. The downgrade of the long-term bank deposit rating to Caa2 reflects an expected recovery rate of 80-90% for uninsured depositors.
  52. ^ "Bank of England seeks to wind up Silicon Valley Bank's UK arm". Reuters. March 11, 2023. Retrieved March 11, 2023.
  53. ^ "Bank of England statement: Silicon Valley Bank UK" (Press release). Bank of England. March 10, 2023. Retrieved March 10, 2023.
  54. ^ "SVB's China Partner Urges Calm, Says Business Not Affected". Bloomberg News. March 10, 2023. Retrieved March 10, 2023.
  55. ^ Thorbecke, Catherine (March 10, 2023). "Silicon Valley Bank collapse sends tech startups scrambling". CNN. Retrieved March 10, 2023.
  56. ^ Yaffe-Bellany, David; Griffith, Erin; Isaac, Mike (March 11, 2023). "Silicon Valley Bank Collapse Sets Off Blame Game in Tech Industry". The New York Times. ISSN 0362-4331. Retrieved March 11, 2023.
  57. ^ a b c Griffith, Erin (March 10, 2023). "Silicon Valley Bank's Collapse Causes Start-Up Chaos". The New York Times. ISSN 0362-4331. Retrieved March 10, 2023.
  58. ^ Goswami, Rohan (March 10, 2023). "Roku says 26% of its cash reserves are stuck in Silicon Valley Bank". CNBC. Retrieved March 10, 2023.
  59. ^ Weprin, Alex (March 10, 2023). "Roku Has $487M in Cash at Failed Silicon Valley Bank". The Hollywood Reporter. Retrieved March 10, 2023.
  60. ^ Melinek, Jacquelyn; Wilhem, Alex (March 10, 2023). "Uncertainty stands around multibillion USDC empire as issuer Circle held reserves at Silicon Valley Bank". TechCrunch. Retrieved March 10, 2023.
  61. ^ Mobley, Esther; Lander, Jess (March 10, 2023). "Silicon Valley Bank collapse is causing a financial crisis for California's wine industry". San Francisco Chronicle.
  62. ^ French, David; Wang, Echo; John, Alun (March 10, 2023). "Silicon Valley Bank is largest failure since financial crisis, billions stranded". Reuters. Archived from the original on March 11, 2023. Retrieved March 10, 2023.
  63. ^ Yasmin, Mehnaz (March 10, 2023). "First Republic, Western Alliance seek to calm contagion worries from SVB meltdown". Reuters. Retrieved March 10, 2023.
  64. ^ Weil, Jonathan (March 10, 2023). "First Republic Hit by Silicon Valley Bank Failure". The Wall Street Journal. Retrieved March 11, 2023.
  65. ^ Naomi Rovnick; Mehnaz Yasmin (March 10, 2023). "Analysis: Californian tech bank SVB sows global fear about rising cost of money". Reuters.
  66. ^ Lynch, David J. (March 10, 2023). "Silicon Valley Bank failure raises fear of broader financial contagion". The Washington Post. ISSN 0190-8286. Retrieved March 10, 2023.

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