By: Mark Glennon*
Set aside for a moment the mistakes made in their California home office that led to it becoming the second largest bank failure in American history. Silicon Valley Bank played a huge role growing Illinois’s now-thriving technology sector. Its people here, past and present, deserve a salute.
For some 25 years, SVB has been at the foundation of that sector in Illinois and in many other locations. It’s widely thought to have been the primary bank for about half of the nation’s young tech companies until it closed last week.
It achieved that dominance the right way — a business model that was not just innovative but that gave personal attention to young entrepreneurs by providing connections and resources beyond money they needed. That approach contributed to the unusual level of collegiality within Chicago’s tech community, which continues today.
I can attest with this illustration: In 1996 I went to Austin for what was called the Texas Venture Capital Conference, which gathered investors to see pitches from young tech companies needing funding. That was new at the time — long before today’s Shark Tank show.
I turned to the woman sitting next to me and said, “I should go back to Chicago and copy this there.” She was from SVB, and said, “Yes you should, and we will sponsor you. We hope to open an office there soon.”
They did just that. The Illinois Venture Capital Conference ran in 1997 and for a number of years thereafter, successfully connecting dozens of young companies with institutional investors. SVB was always among our financial sponsors and its people were always particularly helpful bringing investors in from other states and making the conference work. Its CEO at the time (Ken Wilcox, who happens to have an op-ed on the bank’s demise in the Wall Street Journal today) gave the keynote address at one of the conferences.
SVB opened its Chicago office in 1998 when the tech sector here was tiny. It thrived, and the region’s tech sector did with it. Hundreds of Chicago area companies raised a stunning total of $10 billion of venture capital in 2021, the last year for which reports are available, most of which goes into payroll for cutting-edge jobs. More often than not they’ve been supported by lending and other services from SVB, and those big payrolls ran through operating accounts at SVB.
Back during its infancy, the tech sector here and everywhere was partly tarnished by some of the flakiness of the Dotcom bubble of the late 1990s, but SVB had the smarts to avoid that. Its sophistication grew over the years, developing niche specialties in things like financing for general partners in venture capital firms to pay their capital contributions.
SVB maintained the dominance and reputation it had when I worked in the sector, which I left some years ago, according to those I know still there. Ira Weiss is a partner at Hyde Park Venture Partners in Chicago. He told me over the weekend that, until last week, SVB’s reputation was “pristine” and they had continued to operate the way they always had, providing personal attention to both operating companies and venture capital firms like his. Relationships with SVB were weaved into most of our tech sector, he said.
Ironically, the success of the bankers in the field led to the bank’s downfall because they brought in a massive deposit base. The main office then wrongly invested that money in long-term treasury bonds, which have been hammered by high interest rates, which was the bank’s main problem. But that’s not the fault of the bankers and relationship managers in the field who did their job.
Today, some other banks have tech specialists and are worthy competitors. I hope and expect that the SVB folks I knew will land on their feet with one of them. They did well for themselves and their community.
*Mark Glennon is founder of Wirepoints.
This column was updated to add the penultimate paragraph.
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A largely unasked question is becoming glaring: Is Illinois doing all it should to use artificial intelligence to make government cost less and work better? So far, the evidence says no.
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The Democrats can’t step off the curb without executing a face plant in the street. They are examples of how to screw things up. Failed to isolate or boilerplate bank records of payments. Fetntaynl poring over the border and they’re going to chase trump again wit obviously
flawed evidence.The lowlife Dems are so terrified of Trumpthryll lay siege to wherever he is! Jesus, traffic lights and cross walks!
At my blog, jeffreycarter.substack.com I cover SVBs failure extensively. It was a 100% failure of management to hedge. When I co-founded Hyde Park Angels in Chicago, SVB bank wasn’t really supportive of our effort then. They did sponsor many things in Chicago, and supported later-stage firms (not early-stage firms). SVB gave Chicagoans a sense that the startup scene had arrived. They blew it.
How many successful tech start-ups, incubated in Illinois, remained in Illinois to pay Illinois taxes and maintain Illinois jobs, after their 3-year runways (typically no profits only losses)? Heavy taxpayer subsidies (as with TIF ) assure that majority of development risk is borne by taxpayers. All the profits are enjoyed by …not-taxpayers, unless there is some legal clawback provision or quid pro quo demanded in return for the subsidies. In Chicago tech start-ups, there is only a 3-year ‘localization’ provision (without obvious enforcement mechanisms). Please let us know how to determine how many SUCCESFUL start-ups from Chicago tech incubation have… Read more »
Biden DOL ESG Rule: What It Means for Your Retirement – SmartAsset
It is not just banks anymore.
Janet Yellen says the U.S. Banking system is sound; until it’s not!
I might be a little naive. I only hope the banking industry isn’t as incompetent and corrupt as the governments.way tooo many people with zero core knowledge of their responsibility! C’mon Man; Pete Buttigieg!
Unfortunately, as many here have pointed out, competence was secondary at SVB’s top level, same with many others:https://thespectator.com/topic/svb-silicon-valley-virtue-signaling-sound-banking/#:~:text=The%20bank’s%202022%20proxy%20statement%20had%20proudly%20stated%20that%20its%20board%20was%2045%20percent%20female%20and%20had%20one%20black%20member%2C%20two%20veterans%2C%20and%20one%20who%20was%20LGBTQ%2B.%20Many%20of%20the%20board%20members%20had%20been%20major%20Democratic%20donors
Being woke is a full time job. There’s just no time left by the end of the work day to do any actual work when there’s so much work to do being woke.
Given your ever-present, all-knowing presence here at the expense of your own work participation the same concept seems to apply even to a non-woke guy such as you. How ironic.
LOL I multi-task well…
Sure, I should have guessed you can do it all and without sacrificing anything at all. Right, Superman? By the way, some say “multi-tasking” as the term is commonly used is not how the human brain tends to work in terms of non-life-threatening stimulations at least. The more likely action is shifting continuously from one mental task to another but not doing both “simultaneously”. But, you are able to do that all simultaneously and excellently so. That’s amazing, Grace.
There’s a lot of ‘hurry up and wait’ at my job. Doesn’t affect my performance.
Okay, you win. But, “multi-tasking” doesn’t apply. What your are doing is more aptly described as serial-tasking—the periodic, even frequent switching of your thought process as your motivations, mental triggers, time and interest allow.
I’m multitasking – hurrying up and waiting is one task, and providing poignant and interesting social commentary is the other.
We’re really into “the weeds” here. You are actively doing only one thing at a time every millisecond. Somewhat less frequently but with reaonable consistency your are also fulfilling other roles such as you’ve described. But, why stop there? At each of those moments you also are a spouse, a father and numerous other roles that require your attention but not millisecond-by-millisecond. In everyday language, yes, most likely would agree you are “multi-tasking,” but what I’m telling you is that in the real meaning of the term you are doing each such thing in a serial fashion even if its… Read more »
James – I don’t think you are on point. The issue is whether DEI programs truly add value. I am skeptical- diversity can be appreciated – but a high performance culture must come first. I suspect that DEI proponents deep down believe that the programs work to curry favor with politicians and the media, and this belief might be correct and reflect the actual value of the programs. Didn’t work out for the bank mangers here, but it did inure to the benefit of the depositors, who largely vote in one direction. Lucky , they are. The inability of management… Read more »
I wasn’t attempting to enter the fray on that particular topic of the moment as surely was evident. You realized that presumably and didn’t necessarily need to continue reading if disinterested.
James – the efficacy of DEI programs and their potential for distraction from essential core functions is the elephant in the room, no matter your personal desires. Both SVB and FTX engaged in significant amounts of virtue signaling. It works in our universities, but the perils of this kind of activity appears obvious in businesses where the key lift revolves around taking care of other people’s money. Many of us thought that like most university students virtue signaling acolytes would change and adjust to practical realities of the adult world as they moved into their 30’s and 40’s, shedding their… Read more »
Your remarks may well be valid, but I have no abiding interest in the topic itself. If it’s of interest to others then your input is appreciated presumably. I’m not trying to be showing disrespect to you.
A quote today from the Financial Times –
SVB executives were also deeply committed to social justice, according to several of its ex-employees. “I almost felt like I was at work on a college campus,” said another former executive, who recalled weekly internal “TED talks” on social issues and classes on “how to make sure you were not committing a microaggression”.
Debtsor appears to be all knowing, as you sarcastically suggested.
It is difficult for those ideologically committed to wokeness to recognize how destructive an ideology it is. Ideologues look at objective failure as success, and double down. No different than the Salem Witch trials. The crazy people thought they were killing witches and the dead bodies of innocents piling up, to them, was concrete proof of that they were killing witches! They were trying to convict even more witches before the strongman governor stepped in and put an immediate stop to the madness. And then, just as now, those people most committed to the cause refuse to accept the horrors… Read more »
The most glaring example of how woke ideology has damaged people is the education establishment’s insistence on whole language reading instruction as opposed to phonics. This is so despite the science demonstrating phonics is the most effective way to learn to read. Certain groups such as the Oakland California NAACP have recognized this (hardly a conservative group) and are petitioning the Government for phonics. Significantly, they understand that emotional perceptions of white supremacy matter little when the most oppressive thing one can bear is not being able to read well. The battle is far from over, as the left won’t… Read more »
It’s amazing these people can spout the gibberish with a straight face as the crowd sneers at them. These idiots in Washington are going to get everyone killed. Rat racing around the Black Sea? The Montreaux Convention should be scrapped and only Black Sea bordering countries allowed. We’ve sent capital ships into the Black Sea via the B&D; Reckless? I have nothing but respect for Sec. Floyd Laramie and Mark Miley in his Admiral Kuznetsov disguise.
Silicon Valley Bank and Signature Bank failed due their incompetence, stupidity, greed, corruption and wokeness. They hired and promoted people based on woke identity politics criteria instead of merit and content of character. They did everything they could to marginalize straight, white males. They also wasted a substantial amount of money by donating to woke causes like Black Lives Matter. I’m not saying that everyone employed at these banks was woke, but most of the senior management and many other workers were woke. I’ve been a non-woke employee in a woke company before, so I know better than… Read more »
Mr protein ,
That means it’s working.
The banking system in our country has no backbone due to reckless policies and handling. Government (politicians) do as much or more to make disasters occur as they do to prevent them. SVB had no excuse to not know what to do to avoid their deposit run. The most detailed explanation I found was that the bank: a) has a board that understands risk but didn’t see or respond to it for reasons that fall into the “dumbed-down” category, b) is supposed to have a risk officer who reports independently to the board’s risk committee, and that wasn’t the case, c) is… Read more »
The last time this country experienced an interest rate environment as volatile as what we’ve seen the last 24 months was in the early 80’s. We went into Covid with a relatively strong economy, and throughout Covid, the Fed printed money like there was no tomorrow. It was absolutely insane, and largely unnecessary, and would have been even worse if Sinema and Manchin hadn’t prevented the progressive socialists and bumbling Biden from accomplishing what they really wanted to do. Well now tomorrow has arrived. The Fed got behind the curve and has been extremely aggressive trying to catch up. Yes,… Read more »
This is where the regulatory failure was. SVB’s boatload of bonds was deemed to be held to maturity, not marked to market, thereby being insufficient to cover deposits: https://www.bing.com/search?form=MOZLBR&pc=MOZI&q=silicon+valley+bank+hold+to+maturity
There were lots of failures, Mark. The Illinois tech sector is not thriving. There are too many problems to list here, and the perspective you’ve taken is odd. My biggest problem with the whole mess is the further incentivization of risk taking and systemic fraud. Focusing and allocating tremendous resources on DIE instead of risk management was most likely a critical error. https://www.svb.com/about-us/living-our-values/diversity-equity-inclusion They didn’t have a risk officer for most of 2022 and probably couldn’t care less, but they felt compelled to spend hundreds of millions on… social justice? SVB revealed in a 2023 proxy statement that Chief Risk… Read more »
Venture capital and financing is easy when interest rates are 0%. A large portion of their clients were in extremely volatile sectors like cryptocurrencies.
“He told me over the weekend that, until last week, SVB’s reputation was “pristine” and they had continued to operate the way they always had, providing personal attention to both operating companies and venture capital firms like his.”
I have a hard time believing this. We might need to dig a little, but the truth is going to come out.
I’m not against anyone, their personal values, or ambitions. However, we do need to have a conversation about fanaticism and DIE ideology. Some folks are taking it so far that it is counterproductive and causing harm.
??? We’ve been writing about that constantly for far longer than most anybody has. And it’s odd to me that all these other problems seem to you and some other commenters here mean that the bankers out in the field shouldn’t be complimented for their work over the last 25 years. That was the sole point of the column.
Apparently, lots of people are OK with assigning the guilt of the home office to everybody.
Complimenting bankers on a job well done over the past 25 years after a bank failure??? You need an editor, focus, and sound goals moving forward. You’ve completely jumped the shark with this post. Bankers destroyed my real estate career and team when we took a traditional and prudent approach to bankruptcy & receivership challenges in late 2008. They’ve destroyed traditional capitalism with their fraudulent loan origination schemes, systemic fraud, and lobbying efforts to prevent accountability, indictments and regulation moving forward. They’ve destroyed the savings of every American by lobbying and receiving 0% rates for the last decade. Furthermore, every… Read more »
I worked in banking for 12 years and I agree with all of the complaints you listed here. If I was a senior leader in a bank instead of a rank and file worker, I would create a bank that avoids all of the pitfalls that you listed here and actually operated soundly and ethically. Too many banks have no moral compass of their own and are as reckless and corrupt as the regulations allow and perhaps even more so. The financial collapse of 2008 was created purely out of incompetence, stupidity, greed, and corruption. Now, wokeness… Read more »
The column was not about banks and bankers in genera, or about SVB in general. It’s as if many complaining about this post didn’t read it and have little idea what else we have written.
Here’s a suggestion. If you want to write an article about the social impact of recent bank failures, focusing on the personal accomplishments of low level employees, you could take the approach of this link. Robert A. Caro is a two time Pulitzer winner and arguably one of the best investigative writers ever. This is one of his favorite works, and it’s a masterpiece about a petty $9 burgulary that appeared in Newsday.
https://vintageanchorbooks.tumblr.com/post/72996045543/heres-an-article-by-two-time-pulitzer
Top Audit Firm Defends Giving Clean Bill of Health to SVB, Signature Bank Weeks Before Failure (theepochtimes.com)
The government got too deeply involved, set some very expensive, very scary precedents, and we will all pay the penalty. It is just that simple.
Yup. The root source of the problem, IMO, is that the Fed and other central banks kept interest rates ridiculously low long after the 2008 crisis — right up until about a year ago. Trying to return to normalcy and to address inflation was certain to cause the system to crack in some places.
Interest rates were set low for the financier class to borrow cheaply and become extraordinarily wealthy. The Fed kept interest rates low, for too long, to keep asset prices high. Now that potentially Brandon regime level inflation is causing political problems for Democrats, the Fed is in a bind – raise interest rates and destroy the value of the financier asset classes, or, deal with the political wrath of the Brandon administration demanding ‘They’ do something about inflation. IMHO, all that financier wealth was easy come, easy go. As quickly as those Yellen Bux were created out of thin air,… Read more »
The reason the main office “wrongly invested” is pretty clear when you look at the people involved. Many of the SVB “committees” involved in investment and risk looks like a sorority gathering of 20-something young women. 46 percent of the SVB workforce is female. I used to work with quants at an investment firm. They look like eggheads, and I say that as a compliment. The quants worked late every night on risk assessment models that were as complicated as rocket science. SVB went “woke” and paid the price.
Mmmm – hard to ‘set aside’ what we’ve learned about all of the mistakes that were made that have caused the mistakes we’re making now. As many of the commenters responding to Mr. Wilcox’s WSJ op-ed noted, guvmn’t and private sector mistakes in these really expensive bank failures were really bad. No doubt though, as you point out, very good people – very good employees, even – can work for very badly managed private sector companies and government agencies. They can occasionally do good things. None-the-less, the net’s starting to fill up with SVB folks who tell us that they… Read more »
Blame the bank’s management for the reasons you say, but also blame the FDIC that insured part of the deposits and other regulators. How could they possibly have let the bank use demand deposits to buy long-term bonds?
“Blame the bank’s management for the reasons you say, but also blame the FDIC that insured part of the deposits and other regulators.”
I think I did…
SVB was a criminally mismanaged woke nonsense Ponzi Scheme:
JESSE WATTERS: Biden Can’t Let ‘Woke’ Silicon Valley Bank Fail, It Would Crush His Green Agenda – Fox News — ANDY PUZDER: Woke-Obsessed Bankers And The President’s Mad Spending Juggernaut Fueled This Banking Tsunami – But Guess What? YOU Pick Up The Check – Daily Mail
SVB was also regulated by this incompetent fraud — a diversity hire who ran the San Francisco Federal Reserve Bank whose priority was genders nonsense instead of bank managment:
https://www.bloomberg.com/news/articles/2022-03-24/fed-s-daly-links-inflation-fight-to-broad-employment-goal-q-a
To repeat, any mismanagement issues were in home office, not here. And please watch your language, which I cleaned up.
My brother is a proficient economist who taught money and banking in his professor days and has a 30 year record as an investment manager. We have been going back and forth on this event, taking care not to be overly dramatic. The unemotional place to land appears to be that senior bank management was incompetent and incapable of managing in an inflationary environment with rising interest rates. For the reasons Mark outlines, the bank attracted had only 37000 depositors, virtually all in the same industry. The depositors know each other, making a bank run all the more likely. With… Read more »
Investor, exactly right. Fundamentally, it’s pretty simple: They used all those deposits to buy long term bonds, which plummeted as rates rose. Why they couldn’t see that coming is beyond me. That’s precisely the mistake that the former CEO criticizes harshly in today’s WSJ: https://www.wsj.com/articles/a-eulogy-for-silicon-valley-bank-startups-excess-deposits-tech-long-term-securities-fdic-interest-rates-a1c58c40?mod=opinion_lead_pos6
I don’t understand the bank’s management here either. Given the number of insider stock sales the past year, they had to intuit something was wrong. Like many of my age, 2008 was a cataclysmic event (although luckily I was not personally impacted). Regulators – whether effective or not – tend to focus on preventing the last catastrophe. Post 2008, stress tests focused on credit quality, which makes sense given that most mortgage backed securities which precipitated the disaster were completely bereft of credit quality. One flaw economists have pointed out to me in recent days is that stress tests/regulatory policies… Read more »
It’s my understanding the mismanagement/ misregulation reasons for SVB going under are many and complex but not fraudulent. Other big reasons besides using deposits to buy long term bonds are— very few insured deposits (6% I believe) vrs uninsured deposits, loans where made to a lot of unprofitable speculative companies, the internet speed by which depositors can now withdraw their deposits, etc. But bigger picture is now fed is stepping in an essentially insuring all uninsured deposits for all banks by now creating BTFP (Bank Term Funding Program). Is this moral hazard? I’m sure Illinois public sec pensioners are loving… Read more »
Past public pensioners in insolvencies show that matters turn out relatively well for pensioners. Pensioners seem to make moral and political leverage work for them. Puerto Rico is about as bloody in terms of mismanagement and financials as we have seen, but under PROMESA pensioners have done better than bond holders. Unions in Illinois know this and accordingly have little incentive to participate in pension reform. What I find interesting about the city of Chicago is that lenders have demanded and received liens on tax receipts. In a federal insolvency proceeding one would expect those with explicit property rights to… Read more »
Sorry to disagree — SVB gave $75M to Black Live Matter Rioters, Looters, Arsonists
https://www.foxbusiness.com/politics/silicon-valley-bank-donated-millions-black-lives-matter-related-groups-social-justice-causes-records-show
— Hardly surprising from a bank board staffed by far left woke Democrat megadonors with zero banking experience. Any part of their organization — even in regional offices — is complicit in the BLM violence that ravaged US cities.
??? Again, from the main office. You are smearing the bankers in Illinois, which is what the column is about, assigning blanket blame to everybody in the company.
Illinois is on the front line of woke and green. I would bet Illinois bankers gave out lots of money so the woke and green.
It is sensible to question whether diversity initiatives deliver value to shareholders or drain energy from the core business functions of an entity. But at the end of the day this bank failed to manage risk in a responsible way, diversity programs or not. I do think our economic culture has changed. I can scarcely recall the content of my corporate finance classes in the 80’s but for the singular principle that there always is a relationship between risk and return, and woe to those who forget it. But in the end competence matters – this is why our modern… Read more »
The problem with woke/DIE is two-fold. First of all, woke/DIE hiring is the opposite of merit hiring. Companies fill desk chairs with identities and not skilled employees. As a result, the second problem: wokester/DIE hires be more interested in wokism than actual work. Woke hires think woke is the job. The job they were hired for is the distraction. Woke hires believe that someone else is doing the actual work; but no one else is doing the day to day job, so nothing gets done. I’ve yet to see an institution that goes woke that comes out unscathed, because at… Read more »
Actually ran pretty well, outside of risk management. However, yes the terrible risk management was directly tied to their terrible DEI efforts. Strange bedfellows, failed as expected.
Everything about the left today shows that they have no concept of risk in the real world. We used to laugh and call them snowflakes- nobody thought it would last once the college students left their cocoons and started to live real life. But they did keep that mindset of 100% safety, as every single one of their policies shows. And now they will learn that they were right- somebody will back them up no matter what. They don’t even understand the concept of risk/reward any more.
You give them too much credit. They aren’t the least bit concerned with safety, the environment etc. They are just using it to take power away from ordinary people and hand it to themselves.
It is written in black and white in Alinsky’s books. And yes, the center/right plays right into their hands about 90% of the time, even though they have told us what they are going to do next.
Silicon Valley Bank donated more than $73 MILLION to Black Lives Matter | Daily Mail Online