Silicon Valley Bank is now known as the biggest U.S. bank failure since 2008.
Before becoming known globally for its chaotic collapse, SVB was well-regarded among the tech community, which has a large presence around the San Francisco Bay Area.
The bank's collapse has had a unique impact on the area, said San José State University Assistant Professor Matthew Faulkner. The school is roughly 10 miles from the bank's headquarters in Santa Clara.
"We're in the middle of it. You could feel the mania and the panic and the concern and the interest. It's not uncommon to know somebody, whether you or somebody has money there, or whether their company has money there," Faulkner told NPR. He teaches in the university's accounting and finance department.
For those outside of Silicon Valley and the tech space, Silicon Valley Bank was not a household name. Many of its clients included venture capital firms, startups and wealthy tech workers.
For roughly four decades, SVB successfully competed with big name financial institutions — only to collapse in a matter of days.
Here's a brief history of the now-defunct bank.
Silicon Valley Bank was seen as a "trailblazer"
Silicon Valley Bank was started in 1983 after being conceived by Bill Biggerstaff and Robert Medearis over a game of poker, according to the bank's own history from 2003. The founders' goal was to provide banking services to tech startups in Silicon Valley. Their first office was in San Jose.
Faulkner said the bank's focus on tech made in a "trailblazer" in that regard.
In 1987, the company began trading stock on Nasdaq. A year later it completed its IPO and raised $6 million in equity. The bank gradually expanded around Silicon Valley and then to the East Coast in 1990 with an office in Massachusetts. In the 1990s the company opened offices across the U.S.
After backing young tech startups during the dot-com bubble of the '90s, the company narrowly avoided disaster when the bubble burst and SVB's stock fell more than 50% in 2001, The New York Times reported in 2015.
SVB opened an Israel office in 2008 and a U.K. branch and a joint venture in China in 2012, according to the bank's timeline. Other offices followed in Europe and Canada in the last decade.
It even expanded to capitalize on the ties between the tech community's apparent love for California wine.
Then-SVB executive vice president Rob McMillan and SVB CEO Greg Becker told The Street in 2015 that the bank's wine business was a key part of building its brand and connecting to Silicon Valley entrepreneurs. That year, SVB's wine practice "accounted for 6% of the bank's $14.6 billion gross loan portfolio," the website reported.
By Dec. 31, 2022, SVB held $209 billion in assets and $175 billion in deposits, according to regulators. SVB said on its website at the time that "44% of U.S. venture-backed technology and healthcare IPOs bank with SVB."
It was among the top 20 largest banks in the country, but "you didn't always think of it as a bank in the way you would think of a Wells Fargo or Chase," Faulkner said.
Still, SVB was seen as an establishment bank, said Andrew Metrick, the Janet L. Yellen Professor of Finance and Management at the Yale School of Management.
"These guys have been around for a long time, they're a huge institution in Silicon Valley," Metrick said. "They're basically as old as the organized venture capital community out there."
What made SVB different?
"There was a special expertise around Silicon Valley Bank. A lot of banks may not have participated with [startups and tech companies] the same way Silicon Valley Bank did," Faulkner said.
Normally, if a person is seeking a commercial loan, a bank would request information on their company's cash flow and the available collateral, Metrick said.
"That's a challenge, though, if you are a young company that's not yet cashflow positive and you need, at the very least, banking services. You want somebody to handle your payroll, and be willing to extend you at least small lines of credit, things like that," he said.
SVB did that when other institutions didn't want to take the risk.
A 1995 article from SFGate called it "not your typical lending institution."
"While most commercial banks prefer proven clients, SVB likes to cement relationships with companies when they are economic toddlers," the article says. "It has built strong relationships with the venture capital community."
SVB was unique in really understanding and trusting their clients and building relationships with these companies, venture capitalists and entrepreneurs, Metrick said.
Those relationships meant, long-term, more referrals to other people looking to get their own startups off the ground and expanding into private banking to wealthy clients, he said.
SVB also had around 90% of its accounts with more than $250,000 in deposits, which is "higher than your typical bank," Faulkner said. This meant a majority of the bank's deposits were not insured by the government.
"This bank would seem perfectly at home in the 1920s or the 1870s: Lots of deposits and a lot of local customers," Metrick said. "The very biggest banks have much more diversified client bases, and also somewhat more diversified funding sources. So it wouldn't be as funded as much by deposits."
Starting in 2020, around the time of the pandemic, those deposits skyrocketed, as The Indicator From Planet Money explained.
In SVB's case, this ended up being a big problem when its extra billions were invested in Treasury bonds with long-term maturities and the Federal Reserve raised interest rates, which in turn hurt the value of government bonds. And with the tech sector struggling recently, more depositors took their money out.
Last week, SVB said it was forced to sell part of its bond holdings at a loss of $1.8 billion, leading to a run on the bank. Federal regulators took control of the bank on Friday.
"It's very much a shame that that bank is gone," said Faulkner. [Copyright 2023 NPR]
