ALL ABOUT SILICON VALLEY BANK!

 

Everyone came to know that on Friday Silicon Valley Bank Collapsed and lost about $160 Billion Dollars within 24 hours when a reaction was received by the market. But the question is What was Silicon Valley Bank? What is its history? How important was the Silicon Valley Bank? What will be the future of SVB and its subsidiaries? In today's blog, let us find the answer to all these questions. 

What was the SILICON VALLEY BANK?

A financial organization called SILICON VALLEY BANK specialized in offering banking and financial services to businesses that were interested in technology and innovation. In Santa Clara, California, the United States, it was a Chartered Commercial Bank. SVB was the 16th largest Bank in the United States of America and the biggest bank in Silicon Valley in terms of deposits. SVB had become the most preferred bank for almost half of the venture-backed software startups.

What was its History?

Former Bank of America managers Bill Biggerstaff and Robert Medearis established SILICON VALLEY BANK in 1983 with a focus on the requirements of emerging businesses i.e. STARTUPS. Over a game of Poker, they had the idea. They appointed Roger V. Smith as the bank's first CEO and President. He previously served as the head of the high-tech lending division at Wells Fargo. With 100 initial investors, the bank began operations on October 17, 1983, as a fully owned subsidiary of SILICON VALLEY BANCSHARES  (now SVB FINANCIAL GROUP).

At the time when SILICON VALLEY BANK was established, the banking sector lacked a strong understanding of startup businesses, especially those that lacked revenue. Unlike traditional banks that focus on large corporations and established businesses, SVB's core mission is to support the growth and success of the technology and innovation industry. The bank managed risk based on the startup's business model, structuring its loans with the knowledge that startups don't generate revenue right away. The bank connected clients with its large network of law, accounting, and venture capital firms. Their primary tactic was obtaining deposits from venture capital-funded companies. Later, it expanded into banking and venture capitalist financing, adding services to enable the bank to maintain clients as it grew past the startup stage. In the 1980s, the bank grew with the local high-tech economy, it achieved 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, the acquisition of  National InterCiy Bank of Santa Clara was acquired by SVB.

Its primary strategy was to collect deposits from venture capital-funded businesses. It then expanded into banking and venture capitalist financing, adding services 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.

How has it Expanded?

The wave of computer technology startups during the dot-com boom generated an injection of business for the bank, which was known for its willingness to lend to venture-stage firms that were not yet profitable. Cisco Systems and Bay Networks were among its 2,000 clients in 1995. That year, the bank relocated its headquarters from San Jose to Santa Clara.

SVB joined the private banking market explicitly in 2002, capitalizing on existing expertise and ties with rich venture investors and entrepreneurs. In 2003, the bank sponsored three high-profile international trade missions to Bangalore and Mumbai, Tel Aviv, Shanghai, and Beijing, bringing with them a delegation of two dozen Silicon Valley venture capitalists to meet with local investors, entrepreneurs, and government officials in preparation for the opening of international offices. In 2004, it launched a worldwide growth campaign, with new offices in Bangalore, London, Beijing, and Israel.

In 2015, the bank declared that it served 65% of all startups in the United States. Its innovative products at the time included syndicated loans and foreign currency management, and it was the only US financial institution engaging with virtual currency companies at the time. SVB was a financial partner when Stripe's Atlas platform was launched in February 2016 to assist companies in registering as U.S. corporations.

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

How did the SILICON VALLEY BANK Collapse?

With increasing interest rates and a significant slowdown in growth in the tech industry, where the bank's liabilities were mainly concentrated, SVB began to incur substantial losses in 2022. SVB reported unrealized mark-to-market losses in excess of $15 billion for securities held to maturity as of December 31, 2022. A confluence of circumstances, including inadequate risk management and a bank run pushed by tech industry investors, caused the bank to fail in early March 2023. The use of social media was said to have played a role in both the initial bank run and its aftermath, with those affected by the possible loss of money pleading with regulators to guarantee that uninsured accounts were restored.

Examiners from the Federal Reserve and the FDIC came at SVB's offices early on March 10 to analyze the company's finances. Several hours later, the California Department of Financial Protection and Innovation (DFPI) issued an order seizing SVB and appointing the FDIC as a receiver, alleging insufficient cash and insolvency. The FDIC subsequently established the Deposit Insurance National Bank of Santa Clara to reopen the bank's branches the following Monday and allow access to protected deposits. Greg Becker, the CEO of Silicon Valley Bank, previously served on the board of directors of the Federal Reserve Bank of San Francisco but resigned from that post.

On March 12, a first auction of Silicon Valley Bank assets drew a single bid from an unnamed buyer, after PNC Financial Services and RBC Bank declined to make bids. The FDIC turned down this offer and intends to run a second auction to solicit bids from major banks now that the bank's systemic risk designation authorizes the FDIC to cover all depositors. The FDIC transferred SVB assets to a new bridge bank, Silicon Valley Bridge Bank, N.A., on March 13, 2023, and selected Tim Mayopoulos as CEO. According to regulatory records from December 2022, more than 85% of deposits were uninsured.

SVB's failure was the greatest in terms of assets of any bank since the 2007-2008 financial crisis, and the second-largest in US history, after Washington Mutual.  The chairman of SVB's Chinese joint venture, who is also the chairman of Shanghai Pudong Development Bank, stated that their operations were "sound" as of March 11, 2023.

What is the Future of SVB?

The Bank of England (BoE) decided on March 13, 2023, in conjunction with the Prudential Regulation Authority (PRA), HM Treasury (HMT), and the Financial Conduct Authority (FCA), to sell Silicon Valley Bank UK Limited (SVB UK) to HSBC UK Bank Plc for £1 (the "Sale").

The new CEO of Silicon Valley Bank convened an all-hands meeting on Wednesday to reassure staff that the bank was not preparing to close its doors.

Tim Mayopoulous, the chief executive hired by the Federal Deposit Insurance Corporation after it took control of the bank on Friday, told staff that the bank has resumed many of its normal business operations.

So here, that's all that happened with SILICON VALLEY BANK. But adding to that one more bank have been collapsed in the meantime that is SIGNATURE BANK! In the fear a saving depositories, it plunged the money into Crypto and the result was the collapse!! So this week has not been good with the American Banks as the issues are with CREDIT SUISSE BANK as its Shares have open 20% down yesterday.

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