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Silicon Valley Bank

Headquarters in Santa Clara
Industry	Financial services
Founded	1983; 42 years ago (1983)
Founders	Bill Biggerstaff Robert Medearis
Defunct	March 10, 2023 (2023-03-10)
Fate	Failed after a bank run on its deposits and taken into receivership by the Federal Deposit Insurance Corporation
Headquarters	Santa Clara, California, U.S.
Key people	Greg Becker (CEO) Roger F. Dunbar (Chairman) Michael R. Descheneaux (President)
Revenue	US$7.40 billion (2022)
Net income	US$1.51 billion (2022)
Total assets	US$211.8 billion (2022)
Total equity	US$16.0 billion (2022)
Number of employees	8,553 (December 2022)
Parent	SVB Financial Group
Capital ratio	Tier 1 15.26% (2022)
Website	svb.com
Footnotes / references

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 in 2023 and was the largest bank by deposits in Silicon Valley. It was a subsidiary of SVB Financial Group (formerly Silicon Valley Bancshares), a bank holding company.

The bank's customers were primarily in the technology, life science/healthcare, private equity/venture capital and premium wine industries. 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.

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. SVB Securities provided investment banking services to companies in the technology and healthcare industries.

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. Its insured deposits were moved to a new entity created by the FDIC, called Deposit Insurance National Bank of Santa Clara to protect depositors.

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

History

Initial years (1983–1994)

Silicon Valley Bank (SVB) was founded as Silicon Valley Bancshares in 1983 by Bill Biggerstaff and Robert Medearis over a poker game. 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.

SVB merged with National InterCity Bancorp in 1986 and opened an office in Santa Clara. In 1988, the bank holding company became a public company via an initial public offering, raising $6 million. 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% under CEO John C. Dean, with founding CEO Roger V. Smith becoming Vice Chairman. The bank added a winery lending business in 1994.

Expansion (1995–2022)

In 1995, the bank's clients included Cisco Systems and Bay Networks. That year, the bank moved its headquarters from San Jose to Santa Clara. In 1999, the company was reincorporated in Delaware.

The company's stock price soared during the dot-com bubble but fell 50% when the bubble burst.

In 2001, SVB Securities acquired Palo Alto Alliant Partners, an investment banking firm based in Palo Alto, for $100 million.

In 2002, the bank began expanding its private banking business, which up to that point had been done primarily as a favor to wealthy venture capitalists and entrepreneurs.

In 2004, the bank opened international subsidiaries in Bangalore, India, and London. In 2005, it opened offices in Beijing and Israel. In 2006, the bank began operations in the United Kingdom; it opened its first branch there in 2012.

In December 2008, during the financial crisis of 2007–2008, SVB Financial received a $235 million investment from the U.S. Treasury through the Troubled Asset Relief Program. The U.S. Treasury received $10 million in dividends from Silicon Valley Bank and, in December 2009, the bank repurchased the outstanding stock and warrants held by the government, funding this through a stock sale of $300 million.

In April 2011, Ken Wilcox, who had been CEO since 2000, left the CEO position, while remaining chairman of the board; he was replaced by Greg Becker as CEO. In 2011, the bank expanded to China.

In November 2012, the bank announced a 50–50 joint venture with Shanghai Pudong Development Bank (SPDB) to provide capital to start-up technology entrepreneurs in China. In July 2015, the joint venture was approved by the China Bank Regulatory Commission (CBRC) to operate in renminbi (RMB), the official currency of the People’s Republic of China. According to the bank, in 2015, it was providing banking and financial services to 65% of all startups.

In March 2017, Michael R. Descheneaux was named president of the company.

In January 2019, the company acquired Leerink Partners LLC, now SVB Securities.

In July 2021, the bank acquired Boston Private Financial Holdings, the parent company of Boston Private Bank & Trust Company, a wealth management firm.

Collapse

Background

The Economic Growth, Regulatory Relief and Consumer Protection Act, enacted in 2018, reduced the frequencies of required stress testing implemented under the Dodd–Frank Wall Street Reform and Consumer Protection Act for banks with under $250 billion in assets. CEO Greg Becker supported the changes.

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 short-term bonds. These long-term bonds fell in value as interest rates rose during the 2021-2023 inflation surge and they became less attractive as investments. As of December 31, 2022, SVB had mark-to-market accounting losses in excess of $15 billion for securities held to maturity.

At the same time, rising interest rates made it harder for tech startups to raise more money to fuel their burn rate. They withdrew deposits from SVB to cover current expenses, reducing the bank's liquidity. To raise needed cash, the bank sold some of its bond portfolio at a US$1.8 billion loss.

Instability

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. 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. Despite the steps taken by the bank, Moody's downgraded SVB on March 8. Investors at several venture capital firms, including Peter Thiel's Founders Fund, urged their portfolio companies to withdraw their deposits from the bank. On March 9, customers withdrew $42 billion, leaving the bank with a negative cash balance of about $958 million. The value of the company's shares plummeted until a trading halt was implemented on the morning of March 10.

Receivership

On the morning of March 10, agents from the Federal Reserve and the FDIC arrived at the offices of SVB to assess the company's finances. Several hours later, the California Department of Financial Protection and Innovation (DFPI) issued an order taking possession of SVB, citing inadequate liquidity and insolvency, and appointed the FDIC as receiver. The FDIC then established the Deposit Insurance National Bank of Santa Clara to operate in the failed institution's stead and facilitate access to insured deposits as of the following Monday. The failure of SVB was the largest of any bank since the financial crisis of 2007–2008 and the second-largest in U.S. history.

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

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. Shanghai Pudong Development Bank issued a statement that its joint operations with SVB were not affected by the collapse.

Impact

The collapse of SVB has caused a minor ripple effect among some tech startups, in particular cryptocurrency-related companies. 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. Other companies affected by the collapse include video game developer Roblox Corporation and video hosting service Vimeo. Many startups were unable to retrieve money, resulting in companies taking out loans to make payroll. 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. Vox Media, a media company uninvolved in the startup space, had a "substantial concentration of cash" at the bank.

The California wine industry was also affected by SVB's collapse, as it was "the leading bank for California wineries".

In the wake of the collapse, concerns have been raised about the stability of other banks, with shares of First Republic Bank and Western Alliance Bancorporation falling on the announcement of SVB's dissolution. In addition, stock values of U.S. banks lost a combined US$100 billion in two days and European banks lost US$50 billion. 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.

References

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External links

• • Historical business data for Silicon Valley Bank:
  • SEC filings

• Companies in the NASDAQ Financial-100
• Companies listed on the Nasdaq
• 1983 establishments in California
• 2023 disestablishments in California
• 1980s initial public offerings
• American companies established in 1983
• Bank failures in the United States
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• Banks based in California
• Banks established in 1983
• Companies based in Santa Clara, California
• Companies disestablished in 2023
• Companies formerly listed on the Nasdaq
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• Financial services companies established in 1983
• Financial services companies disestablished in 2023
• Santa Clara, California