Silicon Valley Bank facts for kids
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Headquarters in Santa Clara
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| Industry | Financial services |
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| Fate | Failed after a bank run on its deposits and taken into receivership by the Federal Deposit Insurance Corporation |
| Successor | Deposit Insurance National Bank of Santa Clara |
| Founded | October 17, 1983 |
| Founders |
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| Defunct | March 10, 2023 |
| Headquarters | Santa Clara, California, U.S. |
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Key people
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| Capital ratio | Tier 1 15.26% (2022) |
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. It was a subsidiary of the bank holding company SVB Financial Group. As a state-chartered bank, it was regulated by the California Department of Financial Protection and Innovation (DFPI) and was a member of the Federal Reserve System. The bank operated from offices in 13 countries and regions.
On March 10, 2023, it failed after a bank run on its deposits. The DFPI revoked its charter and transferred the business into receivership under the Federal Deposit Insurance Corporation (FDIC) in the second-largest bank failure in U.S. history. Its insured deposits were moved to a new bank created by the FDIC, called the Deposit Insurance National Bank of Santa Clara, operating from SVB's former offices. December 2022 regulatory filings estimated that more than 85% of deposits were uninsured, and the FDIC said it would begin covering those deposits with special dividends within days as SVB's assets were liquidated. On March 12, 2023, a joint statement by Secretary of the Treasury Janet L. Yellen, Federal Reserve Chairman Jerome H. Powell, and FDIC Chairman Martin J. Gruenberg said all depositors at SVB would be fully protected and have access to all of their money starting the following Monday, March 13.
Contents
History
Initial years (1983–1994)
Silicon Valley Bank was founded by former Bank of America managers Bill Biggerstaff, Robert Medearis, and Roger Smith, who came up with the idea over a game of poker. It launched on October 17, 1983, as a wholly-owned subsidiary of Silicon Valley Bancshares (now SVB Financial Group) with 100 initial investors. Its first office was located on North First Street in San Jose.
In 1986, SVB and National InterCity Bancorp merged, and an office was opened in Santa Clara. It opened its first office on the east coast in 1990, near Boston, to serve the Massachusetts Route 128 tech corridor.
The bank did a substantial real estate loan business in its early years, 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. The bank added a winery lending business in 1994.
Expansion (1995–2022)
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. That year, the bank moved its headquarters from San Jose to Santa Clara. The holding company's stock price soared through the bubble but fell 50% when the bubble burst. The bank continued to add branches in technology hubs across the country. Ken Wilcox became CEO in 2000 and chose to continue the company's niche focus on technology companies rather than diversifying into a broader commercial bank.
SVB formally entered the private banking business in 2002, building on prior experience and relationships with wealthy venture capitalists and entrepreneurs. In 2003, the bank sponsored three high-profile international trade missions to Bangalore and Mumbai, Tel Aviv, and Shanghai and Beijing, bringing along a delegation of two dozen Silicon Valley venture capitalists along to meet with local investors, entrepreneurs, and government officials, as a prelude to opening international offices. It announced an international expansion drive in 2004, with new operations in Bangalore, London, Beijing, and Israel.
During the 2007–2008 financial crisis, SVB Financial Group received a $235 million investment from the federal government in exchange for preferred stock and warrants under the Troubled Asset Relief Program (TARP). Over 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. Greg Becker replaced Wilcox as CEO in April 2011.
SVB partnered with Shanghai Pudong Development Bank (SPDB) in 2012 to create a separate Shanghai-based bank to lend to local technology startups. 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. SVB also managed two local yuan-denominated funds for Shanghai's Yangpu District government, and invested in a Hangzhou-based loan guarantee company.
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 U.S. financial institution then working with virtual currency startups. SVB was the finance partner during the launch of Stripe's Atlas platform in February 2016 to help startups register as U.S. corporations.
In June 2021, Mounir Gad, a former senior vice president and director at the bank, plead guilty to two counts of securities fraud for violating insider trading laws in 2015 and 2016. In February 2023, he was sentenced to 15 months in prison for falsifying letters of support during sentencing for the previous case.
Collapse (2023)
In 2022, SVB began to incur steep losses following increased interest rates and a major downturn in growth in the tech industry, where the bank's liabilities were heavily concentrated. As of December 31, 2022, SVB had mark-to-market accounting unrealized losses in excess of $15 billion for securities held to maturity. In early March of 2023, a combination of factors—including poor risk management and a bank run driven by tech industry investors—caused the bank to collapse.
Examiners from the Federal Reserve and the FDIC arrived at the offices of SVB early in the morning of March 10 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 a deposit insurance national bank, the Deposit Insurance National Bank of Santa Clara, to re-open the bank's branches the following Monday and enable access to insured deposits. According to Reuters, after the SVB was closed by regulators, the CEO of Silicon Valley Bank, Greg Becker, who was previously on the board of directors at the Federal Reserve Bank of San Francisco, exited that position.
The failure of SVB was the largest of any bank since the 2007–2008 financial crisis by assets, and the second-largest in U.S. history behind that of Washington Mutual. SVB's Chinese joint venture, whose chairman is the chairman of Shanghai Pudong Development Bank, said their operations were "sound" as of March 11, 2023. The UK Government announced that they were working on a lifeline for British tech firms affected by the collapse of the Bank and their branch in the United Kingdom as a part of the fallout from the parent bank.
Business model
When Silicon Valley Bank was founded, the banking industry did not understand startup companies well. The bank structured its loans with the understanding that startups do not earn revenue immediately, managing risk based on their business model. The bank connected customers to its extensive venture capital, law, and accounting firm network. Its main strategy was collecting deposits from businesses financed through venture capital. It then expanded into banking and financing venture capitalists, adding services to allow the bank to keep clients as they matured from their startup phase. Initially, startup founders seeking loans from the bank had to pledge about half of their shares as collateral, but the rate later fell to about seven percent, reflecting a low failure rate and founders' tendency to pay off the loans to stay in control of the company. The bank covered losses by selling the shares to interested investors.
The bank's customers were primarily businesses and people in the technology, life science, healthcare, private equity, venture capital and premium wine industries. It was influential among startups in India, being unusually willing to serve C corporations whose founders lacked Social Security numbers.
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. Silicon Valley Bank required an exclusive relationship of those borrowing from the bank.
Operations
The bank operated from offices in Canada (Toronto), the Cayman Islands (Grand Cayman), China (Beijing, Shanghai, Shenzhen), Hong Kong, India (Bangalore), Ireland, Israel (Tel Aviv), Sweden (Stockholm), the United Kingdom, the United States, Denmark (Copenhagen), Germany (Frankfurt) and other countries of the European Union.
The bank's 160,000-square-foot (15,000 m2) headquarters in Santa Clara, California, which also serves as headquarters for the holding company, has been the longtime anchor tenant of a seven-building office complex called The Quad at Tasman. The bank's lease was scheduled to expire on September 30, 2024. It also operated 55 offices, including 17 branches across the United States. Overall, in 2022, the company had $101 million in net occupancy costs for its various office leases through 2057. If the FDIC cannot find a buyer for the bank's assets, federal law allows it to negate these leases.
Though banking is a high-tech sector, the bank was criticized for having old technology and lacking biometric authentication.
Affiliations and community involvement
Silicon Valley Bank was a member of the Federal Reserve System, with the bank's CEO serving as a class A member of the Federal Reserve Bank of San Francisco Board of Directors. It was also a member of several trade associations: TechNet, the Silicon Valley Leadership Group, the Bay Area Council, Tech:NYC, the Mid-Size Bank Coalition of America, and the American Bankers Association. As part of its foray into India, it partnered with the non-profit mentoring organization TiE beginning in the late 1990s.
Silicon Valley Bank sponsored EF Education–Tibco–SVB, a women's professional cycling team, beginning in 2007, becoming a co-title sponsor in 2015.
Since 2002, the bank made more than $2 billion in loans and investments to developers, including $1.6 billion in loans since 2014, to build affordable housing in Silicon Valley and San Francisco, as well as Massachusetts (from its 2021 acquisition of Boston Private).
See also
In Spanish: Silicon Valley Bank para niños
