California - Silicon Valley Bank (SVB), https://svb.com, a lender that was a fixture in the venture capital space for decades, collapsed on 10 March 2023. The California Department of Financial Protection and Innovation closed SVB and named the FDIC as the receiver. The trouble started on 08 March 2023 after SVB suddenly announced a plan to raise billions in capital to cover big losses. It set off widespread panic among investors and the tech founders they backed. Shares of the company fell by around 60% in 09 March 2023 trading, another 20% in aftermarket trading, and were halted at the open on 10 March 2023. Hours later, amid reports that SVB struggled to attract buyers in a sale, the government took control. In the run-up to all this, SVB’s proxy statement, filed earlier this month, reveals that the firm’s chief risk officer stepped away from her role early last year, and the bank did not hire a replacement until January 2023.
Laura Izurieta stepped down from her role as Chief Risk Officer (CRO) of SVB Financial Group in April 2022, and formally departed the company in October 2023, according to an SVB proxy filing. The bank appointed her permanent successor as CRO, Kim Olson, in January 2023.[1]
It is unclear how the bank managed risks in the interim period between the departure of one CRO and the appointment of another. Representatives at SVB have not been available for comments.
A risk officer typically anticipates and manages regulatory, operational, competitive or other risks faced by a firm. SVB’s risk chief reports directly to a “Risk Committee,” which includes chairpersons of SVB’s Board and all the Board committees, in addition to the Chief Executive Officer, according to filings from the company. The committee is responsible for hiring, evaluating and terminating the CRO, and as of 2023, was made up of seven members.
Silicon Valley Bank was without an official CRO during a difficult transition in the venture capital market the industry SVB services so closely. At the beginning of 2022, as interest rates started to climb, venture capitalists pulled back and slowed down their pace of mergers and acquisitions (M&A), leaving the tech companies they backed with less capital(cash) to run their businesses. That negatively affected deposits at Silicon Valley Bank.
SVB is a pivotal part of the tech world, which has been the victim of mass layoffs in the past year. It says it has relationships with about 50% of America’s venture capital-backed companies, making the impact of its failure potentially far-reaching. Some other financial institutions have been feeling tremors from SVB’s fall, and Signature Bank, prominent in the crypto world, saw its shares drop over 30%, while shares of First Republic, a regional bank, fell by 23% by mid-day on 10 March 2023. Bill Ackman, the founder of Pershing Square Capital Management, warned on 09 March 2023 that SVB’s collapse may be another case of an institution being “too big to fail,” urging the government to consider bailing it out.
The sudden rush to safety by investors was so severe that SVB went from a market cap of more than $15 billion to seizure by the FDIC within days. The FDIC released a statement that SVB customers would have access to their insured deposits on 13 March 2023. But how customers will be able to recoup their uninsured deposits is still unclear.
Massachusetts, Wellesley - SVB, which has 17 branches in California and Massachusetts, was seized by regulators on 10 March, the FDIC announced. The bank failed after depositors, mostly technology workers and venture capital-backed companies began withdrawing their money, creating a run on the bank. It's the largest bank failure since Washington Mutual during the height of the 2008 financial crisis.[2]
The failed bank's website lists offices in Boston and Newton MA, as well as Cambridge, Beverly, and Wellesley locations that previously served Boston Private clients. A note on the door in Wellesley said, "Until further notice, the office is closed." A note on the door says the Wellesley office of Silicon Valley Bank is closed.
Police in Wellesley said there was a line of customers outside the bank on Friday morning. Officers responded to the scene when there was confusion about a man trying cut the line who turned out to be an FDIC representative. No one was hurt, and the police didn't make any arrests. Concerns surfaced this week about the bank's financial stability, and it announced it had to sell off shares and some of its portfolio become customers were rushing to take out their money. The FDIC said all customers will have full access to their money by Monday.
The bank had $209 billion in assets and $175.4 billion in deposits at the time of failure, the FDIC said in a statement. It was unclear how much of the deposits was above the $250,000 insurance limit at the moment. Notably, the FDIC did not announce a buyer of Silicon Valley's assets, which is typically when there's an orderly wind-down of a bank. The FDIC also seized the bank's assets in the middle of the business day, a sign of how dire the situation had become.
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[1] https://fortune.com/2023/03/10/silicon-valley-bank-chief-risk-officer/
[2] https://www.cbsnews.com/boston/news/silicon-valley-bank-closed-seized-fdic-depositors/
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