Silicon Valley Bank facts for kids
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Headquarters in Santa Clara
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| Industry | Financial services |
| Fate | Failed after a bank run on its deposits, held in receivership by the FDIC, assets acquired by First Citizens Bank |
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| Founded | October 17, 1983 |
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U.S.
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Key people
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Number of employees
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8,553 (December 2022) |
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| Capital ratio | Tier 1 15.26% (2022) |
Silicon Valley Bank (SVB) was a special kind of bank that mostly helped startup companies and people in the technology world. It was a big part of the San Francisco Bay Area's tech scene. For a while, it was the largest bank in Silicon Valley for deposits. It was also the favorite bank for almost half of all new tech companies that got funding from venture capital firms.
In March 2023, the bank faced a big problem. Many customers tried to take out their money at the same time. This is called a bank run. Because of this, the bank collapsed and was taken over by the Federal Deposit Insurance Corporation (FDIC). The FDIC is a U.S. government agency that protects bank deposits. This was one of the biggest bank failures in U.S. history.
To protect customers, the U.S. government quickly stepped in. They announced that all customers would get their money back, even if they had very large amounts. The FDIC then created a new, temporary bank called Silicon Valley Bridge Bank, N.A. This new bank kept things running smoothly. Later, another bank called First Citizens Bank bought most of Silicon Valley Bank's business. Now, Silicon Valley Bank is a part of First Citizens Bank.
Contents
How Silicon Valley Bank Started and Grew
Silicon Valley Bank was created in 1983 by Bill Biggerstaff and Robert Medearis. They wanted to build a bank that understood the special needs of new companies. At that time, most banks didn't know how to work with startups that didn't have much money yet.
Roger V. Smith became the bank's first CEO. The bank opened its doors on October 17, 1983. It started with 100 investors, including famous people like NFL quarterback Jim Plunkett. Its first office was in San Jose, California.
Banking for Startups
SVB was different because it understood that startups don't make money right away. They designed loans that fit this idea. They also connected their customers with a large network of venture capital firms, lawyers, and accounting companies.
The bank's main plan was to collect money from businesses that got funding from venture capital. Then, they started helping the venture capitalists themselves. This way, they could keep clients as they grew from small startups into bigger companies.
At first, startup founders had to promise a lot of their company shares as a guarantee for loans. But this changed over time. The bank found that most founders paid back their loans. This was because they wanted to keep control of their companies.
The bank often chose to work with startups that got money from top venture capital firms. This helped them lower their risks.
Growing Across the Country
In the 1980s, the bank grew quickly as the high-tech industry expanded. They made a profit for 21 quarters in a row. In 1986, SVB bought another bank in Santa Clara, California. By 1990, they opened their first office on the East Coast, near Boston. This helped them serve tech companies there.
In the early 1990s, the bank tried lending for real estate, but it didn't go well. They lost money in 1992. After that, they focused less on real estate. In 1993, John C. Dean became the new CEO. The bank also started a business lending to wineries in 1994.
Expanding Services and Locations
The rise of internet companies during the dot-com bubble brought a lot of new business to SVB. The bank was known for being willing to lend to new companies that weren't making money yet. By 1995, they had about 2,000 clients, including big names like Cisco Systems. That year, the bank moved its main office to Santa Clara.
Even when the dot-com bubble burst, the bank kept adding offices in tech centers across the country. Ken Wilcox became CEO in 2000. He decided to keep the bank focused on technology companies instead of trying to be a general commercial bank.
Going Global
In 2002, SVB started offering private banking services. This meant helping wealthy investors and business owners manage their money. In 2003, the bank organized trips to places like Bangalore (India), Tel Aviv (Israel), and Shanghai (China). They brought venture capitalists to meet local investors and entrepreneurs. This helped them prepare to open international offices.
By 2004, SVB announced plans to expand globally. They opened new operations in Bangalore, London, Beijing, and Israel.
During the 2007–2008 financial crisis, the U.S. government invested money in SVB's parent company. SVB later bought back the government's investment. In 2011, Greg Becker became the new CEO.
In 2012, SVB worked with a Chinese bank to create a new bank in Shanghai. This new bank, called SPD Silicon Valley Bank, helped local tech startups. It was special because it was one of the few American-owned banks allowed to work with Chinese money.
By 2015, SVB said it served 65% of all U.S. startups. They also started offering new services like managing foreign money. They were even one of the only U.S. banks working with virtual currency startups at that time.
How the Bank Worked Before Its Collapse
Business Model and Focus
Silicon Valley Bank mainly served businesses and people in specific areas. These included technology, life science, healthcare, private equity, venture capital, and the high-end wine industries. They were very important for startups in India, especially those whose founders didn't have U.S. Social Security numbers.
Even though they worked with high-tech companies, some people said the bank's own technology was old. For example, it didn't have biometric authentication (like fingerprint or face ID).
By the end of 2022, a large part of their loans (56%) went to venture capital and private equity firms. These loans were used to invest in private companies. Another 14% were mortgages for wealthy people. About 24% of their loans went to technology and healthcare companies. This included 9% for early-stage startup companies. Silicon Valley Bank often asked companies borrowing money to have an exclusive banking relationship with them.
In February 2023, Forbes magazine listed SVB as one of "America's Best Banks." They noted its good return on equity. In March 2023, a financial rating company called Moody's said the bank's loans were generally safe and performing well.
Locations and Offices
The bank was mostly run from its main office in Santa Clara, California. It also had a big office in Tempe, Arizona. SVB's parent company, SVB Financial Group, had other businesses that offered investment banking and private banking services. These offices were in many countries, including Canada, China, Hong Kong, India, Ireland, Israel, Sweden, Denmark, Germany, and the United Kingdom.
The main office in Santa Clara was a large building. The bank also had 17 other branch locations in California and Massachusetts. In total, the parent company had 55 offices across the U.S.
Community Connections
Silicon Valley Bank was a member of the Federal Reserve System. Its CEO was even on the board of directors for the Federal Reserve Bank of San Francisco. The bank also belonged to several important trade groups that support technology and business.
In 1995, the bank started a nonprofit group called the Silicon Valley Bank Foundation. This foundation helped with the bank's community programs. The bank also sponsored a women's professional cycling team, EF Education–Tibco–SVB, starting in 2007.
Since 2002, the bank provided over $2 billion in loans and investments to help build affordable housing in Silicon Valley, San Francisco, and Massachusetts. They also offered free banking services to many nonprofit organizations in San Mateo County, California.
The Collapse of Silicon Valley Bank
In 2022, Silicon Valley Bank started losing a lot of money. This happened because interest rates went up, and the tech industry slowed down. The bank had invested heavily in long-term U.S. government bonds. When interest rates rose, the value of these bonds went down.
In early March 2023, several things led to the bank's collapse. Poor risk management and a bank run (when many people try to take out their money at once) were key factors. News spread quickly on social media, which made the bank run worse.
On March 10, 2023, government examiners looked at SVB's finances. A few hours later, the California Department of Financial Protection and Innovation (DFPI) took over the bank. They said the bank didn't have enough money and was unable to pay its debts. The FDIC was appointed to manage the bank.
The FDIC quickly created a new, temporary bank called Silicon Valley Bridge Bank, N.A. This allowed the bank's branches to reopen and customers to access their insured money. The goal was to keep banking services running smoothly. All SVB clients became customers of this new bridge bank. The FDIC made it clear that their job was to protect customers' money, not the bank's shareholders.
It was estimated that over 85% of the deposits at SVB were not insured by the FDIC. The failure of SVB was the second-largest bank failure in U.S. history at the time.
The collapse also affected other places. SVB's joint bank in China said their operations were fine. However, the UK government had to step in to help British tech companies affected by SVB's UK branch. Many firms in the UK were at risk of going bankrupt. On March 13, 2023, HSBC UK bought Silicon Valley Bank UK for a very small amount of money. This deal saved the British depositors and cost taxpayers nothing.
On March 17, 2023, SVB Financial Group, the former parent company of Silicon Valley Bank, filed for Chapter 11 bankruptcy. This bankruptcy did not include the new Silicon Valley Bridge Bank or other parts of the business that were no longer connected to SVB Financial Group.
A later review by the Federal Reserve found that the bank's collapse showed "weaknesses in regulation and supervision." This means there were problems with how the bank was watched and controlled. The review suggested that changes needed to be made to the banking system's rules.
On March 26, 2023, the FDIC announced that First Citizens BancShares would buy the main banking business of SVB. First Citizens bought about $119 billion in deposits and $72 billion of SVB's loans. The next day, SVB's 17 branches reopened as "Silicon Valley Bank, a division of First Citizens Bank." All SVB customers became customers of First Citizens. This deal made First Citizens one of the top 20 largest banks in the United States.
Images for kids
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Silicon Valley Bank office on Sand Hill Road in Menlo Park, California
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Silicon Valley Bank headquarters in Santa Clara, California
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The FDIC briefly created a new bank, the Deposit Insurance National Bank of Santa Clara, for the purpose of servicing SVB's insured deposits, before replacing it with a bridge bank.
See also
In Spanish: Silicon Valley Bank para niños
