Silicon Valley Bank
| Silicon Valley Bank | |
| Founded | 1983 |
|---|---|
| Headquarters | Santa Clara, California |
Silicon Valley Bank (SVB), a commercial bank with its headquarters in Santa Clara, California, was the 16th largest U.S. bank. SVB provided banking, lending and investment products along with advice designed to help its customers' businesses expand internationally. It was a major lender to some of the biggest technology companies.
In March of 2023, SVB became the largest bank to fail since the 2008 financial crisis. U.S. regulators shut the bank down on March 10 to prevent a broader banking crisis, and reverberations from the failure reached the tech industry, Washington D.C. and Wall Street.[1]
SVB's collapse was followed in quick succession by two other bank failures: Credit Suisse, which was bought by its rival UBS and Signature Bank. New York Community Bancorp later acquired the remaining deposits at Signature Bank.[2]
History[edit]
SVB was conceived in 1982 by Bill Biggerstaff, an executive of Wells Fargo, and Robert Medearis, a Stanford University professor, over a poker game. Their goal was to provide banking services to tech startups in Silicon Valley.[3]
SVB opened its first office in 1983 in San Jose. In 1985, a Palo Alto office followed. In 1986, SVB merged with National InterCity Bancorp and opened an office in Santa Clara. [4]
In 1987, the bank began trading stock on the Nasdaq and in 1988, its IPO completed, SVB raised $6 million in equity. [5]
By the 1990s, SVB had diversified into the the real estate loan business, with real estate representing approximately 50% of its portfolio. As a result, the 1992 California real estate burst hit the bank's assets particularly hard, with SVB recording a $2.2 million yearly loss.[6]
In 1994, capitalizing on the tech community's apparent love for California wine, the bank launched a winery lending business, providing industry insights, strategic advice and financial expertise.[7]
In the 1990s, SVB had begun to expand across the U.S., starting with its first office on the East Coast near Boston. By 1996, the bank had opened offices into 15 states. In 1997, it opened a branch in Atlanta. In 1999, it was reincorporated in Delaware, and in 2000, it opened a branch in Florida.[8]
International operations began with the opening of its Israeli office in 2008. SVB launched a UK branch and opened a joint venture bank in China in 2012. Its Ireland office was opened in 2016, and its Germany office in 2018. Expansion continued in 2019, with the acquisition of Leerink Partners, a healthcare investment bank, the opening of a Global Delivery Center in India, and offices in Canada and Denmark. SVB acquired WestRiver Group's Debt Investment Business in 2020, and in 2021 acquired Boston Private, a leading provider of wealth management, trust, and banking services. Later in 2021, SVB Launched Nasdaq Private Market (NPM) with Nasdaq, Citi, Goldman Sachs and Morgan Stanley. In this collaboration, SVB used the NPM platform to provide additional services to its clients in the technology industry. Also in 2021, SVB launched its technology investment banking practice and acquired equity research firm MoffettNathanson.[9]
SVB developed a name as a bank for startups because of its work with technology startups, such as Apple, Google, and Amazon. As the Silicon Valley technology industry grew, SVB's client base expanded, and the bank became known for its deep expertise and connections in the industry. [10] In 2022, 56% of its loans year-end 2022 were to venture capital and private equity firms. The loans were secured by their limited partner commitments. In addition, at the end of 2022, 14% of its loans were mortgages that had been made to wealthy individuals and former clients of Boston Private; and 24% were to tech and healthcare companies, 9% of which were early and growth-stage startups. [11] The bank also claimed it banked nearly half of all U.S. venture-backed tech and healthcare startups and banked 44% of 2022’s venture-backed tech and healthcare IPOs, and 55% in 2021. [12]
Collapse of Silicon Valley Bank in 2023[edit]
In March of 2023, a combination of a series of interest rate hikes by the U.S. central bank and surging global inflation set off a run on Silicon Valley Bank. The first major sign a collapse of the bank was imminent was on March 8, 2023, when the bank suddenly announced that it needed to raise $2.2 billion. SVB CEO Greg Becker assured investors there was no need to panic, but a conference call from Becker failed to ease investors' concerns. In a few days, the bank's stock fell by more than 60%. On March 10, the Federal Deposit Insurance Corporation announced it had closed the bank and moved all its remaining deposits and assets to a newly created, FDIC-operated ‘bridge bank’.[13] [14] The FDIC named Timothy J. Mayopoulos as chief executive officer and president of the bridge bank, which was named Silicon Valley Bridge Bank. He was appointed on March 13, 2023.
After frantic negotiations brokered by Swiss regulators to prevent the crisis from spreading, UBS agreed to buy Credit Suisse for $3.25 billion.[15]
According to various news reports, in the years before the collapse, the U.S. Federal Reserve had repeatedly warned SVB that it had found serious weaknesses in how it was handling key risks. The San Francisco Fed, which oversaw Silicon Valley Bank, issued six citations warning that the firm was not properly ensuring it would have enough cash on hand in the event of trouble. But the bank did not fix those vulnerabilities. SVB was rated deficient governance and controls in July 2022 and placed under restrictions.[16]
Greg Becker served as the final CEO of Silicon Valley Bank and as a board member of the Federal Reserve Bank of San Francisco before SVB's collapse.
Causes[edit]
According to The New York Times, about 97 percent of SVB's deposits were uninsured by the federal government, which meant customers were more likely to take their money out at the first sign of trouble. Also, many of the bank’s depositors were in the technology sector, which had recently suffered as higher interest rates took a toll on business. SVB also held a lot of long-term debt that had lost market value as the Fed raised interest rates to fight inflation. As a result, SVB had enormous losses when it had to sell those securities to raise cash to meet a wave of withdrawals from customers.[17]
Acquisition[edit]
First Citizens BancShares said on March 26, 2023, that it would acquire Silicon Valley Bank. In the deal, First Citizens, a family-run bank in North Carolina that traces its history to the late 1800s, will purchase $72 billion in loans, at a discount of $16.5 billion, and the transfer of all the bank’s deposits, worth $56 billion. The F.D.I.C. retains control of roughly $90 billion of Silicon Valley Bank’s securities and other assets.[18]
Products and Services[edit]
Key People[edit]
- Greg Becker, most recent CEO
- Timothy J. Mayopoulos, CEO of Silicon Valley Bridge Bank
References[edit]
- ↑ UBS agrees $3.25bn rescue deal for rival Credit Suisse. The Financial Times.
- ↑ The Week in Business: A Bank Takeover. The New York Times.
- ↑ The rise and stunning fall of Silicon Valley Bank. Axios.
- ↑ Silicon Valley Bank Company History. Zippia.
- ↑ For 40 years, Silicon Valley Bank was a tech industry icon. It collapsed in just days.. NPR.
- ↑ Silicon Valley Bank Company History. Zippia.
- ↑ Premium Wine Banking. Silicon Valley Bank.
- ↑ Silicon Valley Bank Company History. Zippia.
- ↑ Facts at a Glance. Silicon Valley Bank.
- ↑ 9 questions about Silicon Valley Bank’s collapse, answered. Vox.
- ↑ The rise and stunning fall of Silicon Valley Bank. Axios.
- ↑ Q4 2021 Financial Highlights. SVB.
- ↑ FDIC Acts to Protect All Depositors of the former Silicon Valley Bank, Santa Clara, California. FDIC.
- ↑ SVB collapse: A timeline of the bank's demise. The Washington Examiner.
- ↑ UBS agrees $3.25bn rescue deal for rival Credit Suisse. The Financial Times.
- ↑ Before Collapse of Silicon Valley Bank, the Fed Spotted Big Problems. The New York Times.
- ↑ Before Collapse of Silicon Valley Bank, the Fed Spotted Big Problems. The New York Times.
- ↑ Silicon Valley Bank Sold to First Citizens in Government-Backed Deal. The New York Times.