Silicon Valley Bank

Silicon Valley Bank (SVB) is a commercial bank division of First Citizens BancShares. The bank was previously the primary subsidiary of SVB Financial Group, a publicly traded bank holding company that had offices in 15 U.S. states and over a dozen international jurisdictions.

As a regional bank in the San Francisco Bay Area, SVB offered services specifically designed to meet the needs of the tech industry, and soon became the largest bank by deposits in Silicon Valley and the preferred bank of almost half of all venture-backed tech startups. In March 2023, after central bank–endorsed interest rate hikes during the 2021–2023 inflation spike, there was a bank run on its deposits, which led to its collapse and seizure on March 10, 2023 by the California Department of Financial Protection and Innovation (DFPI), its regulator. Citing inadequate liquidity and insolvency, state officials at the DFPI appointed the Federal Deposit Insurance Corporation (FDIC) receiver of the bank. This was, at the time, the second-largest bank failure in U.S. history, later surpassed by the collapse of First Republic Bank during the March 2023 United States bank failures.

On March 12, 2023, a joint statement was issued by Secretary of the Treasury Janet Yellen, Federal Reserve Chairman Jerome Powell, and FDIC Chairman Martin Gruenberg, stating that all depositors at SVB would be fully protected and would have access to both insured and uninsured deposits starting the following Monday, March 13. The FDIC then established a bridge bank successor, Silicon Valley Bridge Bank, N.A., which quickly assumed ongoing business. On March 27, 2023, First Citizens Bank & Trust Company, a subsidiary of First Citizens BancShares, assumed all customer deposits and acquired all loans of Silicon Valley Bridge Bank from the FDIC and began operating all SVB branches.

Foundation and early growth

Silicon Valley Bank was founded as a state-chartered bank in 1983 by Wells Fargo executive Bill Biggerstaff and Stanford University professor Robert Medearis to focus on the needs of startup companies. The two former Bank of America managers and tennis buddies came up with the idea over a game of poker in Pajaro Dunes, California. They hired Roger V. Smith, who had previously headed a high-tech lending unit at Wells Fargo, to be the bank's first CEO and president. The bank launched on October 17, 1983, as a wholly owned subsidiary of Silicon Valley Bancshares (now SVB Financial Group). It lined up 100 initial investors, including NFL quarterback Jim Plunkett, and well-connected former U.S. representative Pete McCloskey joined its board to give the bank credibility with the venture capital community. The bank's first office was located on North First Street in San Jose.

When Silicon Valley Bank was founded, the banking industry did not have a good understanding of startup companies, particularly those that lacked revenue. 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. Eventually, it became common for venture capital firms' term sheets to require startups to create a bank account at Silicon Valley Bank specifically. For its part, the bank prioritized startups that received funding from top-tier venture capital firms, such as Sequoia Capital, New Enterprise Associates, or Kleiner Perkins, as a way to reduce risk.

During the 1980s, the bank grew with the local high-tech economy, achieving 21 consecutive quarters of profitability. It went from a loss of $39,000 in 1985 to a profit of $12.3 million in 1991. In 1986, SVB acquired National InterCity Bank of Santa Clara. It opened its first office on the East Coast in 1990, near Boston, to serve the Massachusetts Route 128 tech corridor.

Under Smith's leadership, the bank diversified into the high-risk real estate loan business, which amounted to 50% of its portfolio by 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 Smith becoming vice chairman. The bank added a winery lending business in 1994.

Expansion

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 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, SPD Silicon Valley 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.

SVB's involvement in financing acquisitions for startups gave it insider information regarding such acquisitions, and in June 2021 Mounir Gad, a former senior vice president and director at the bank, pleaded guilty to violating insider trading laws in 2015 and 2016 when he tipped off a friend about three startup acquisitions.

Operations in lead-up to collapse

Business model

The bank's customers were primarily businesses and people in the technology, life science, healthcare, private equity, venture capital and premium wine industries. According to the Federal Reserve, the bank’s client base has been heavily concentrated in venture capital-backed (VC-backed) and early-stage start-up firms, with an emphasis on emerging entrepreneurs and investors. It was influential among start-up businesses in India, being unusually willing to serve C corporations whose founders lacked Social Security numbers. Despite banking a high-tech sector, the bank was criticized for relying on old technology and lacking biometric authentication.

In December 2022, 56% of the bank’s 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.

In February 2023, Forbes listed the bank as #20 of "America's Best Banks" with a 13.8% return on equity. As of March 2023, Moody's Investors Service rated the bank's loan portfolio as conservative and high-performing, with the bank's overseas subsidiaries holding $13.9 billion in deposits.