Silicon Valley Bank spent decades building trust and relationships with Silicon Valley tech startups. But a Twitter panic took the bank down in days — triggered by the same people who placed their trust in the bank in the first place.
00:00 One of the misconceptions of the Silicon Valley Bank crisis is that it's just like 2008 or just like FTX,
00:08 in that there was some kind of widespread fraud.
00:11 But as of now, it kind of seems like it was just a lot of people not quite paying attention
00:16 and then one brief moment of very intense panic.
00:19 My name is Darius Raffion. I'm a senior reporter covering venture capital and startups here at Insider.
00:24 Silicon Valley Bank was founded in 1983 by two folks at Bank of America who came up with the idea over a poker game
00:33 and basically realized that there was no financial institution to serve this growing Silicon Valley tech startup scene.
00:41 This is pre-Google, pre-Facebook. So for the longest time, they were kind of just this boutique institution.
00:47 They did foster this reputation as being the hometown bank of Silicon Valley.
00:51 They sponsored a ton of really exciting, lavish events.
00:55 They famously had a ski chalet where they would invite founders and investors to come hang out.
01:02 And they kind of grew as the tech startups grew.
01:05 It takes a very particular type of banker to want to work with those companies.
01:10 It's more risky and it's less lucrative.
01:14 It took them about 36 years to get to $100 billion in deposits and then took them one year to go from $100 billion to $200 billion.
01:24 They inadvertently became the 16th largest bank in America, which was the start of some of their problems.
01:31 They didn't do a great job of managing that massive inflow of deposits that they got.
01:39 They suddenly had $100 billion that they didn't know what to do with.
01:42 They ended up parking it in long-term, low-yielding, very safe mortgage-backed securities.
01:50 That seemed like an OK bet when interest rates were near zero.
01:54 But as interest rates rose, the value of that portfolio took a nosedive.
01:59 So they decided that they needed to raise some money to kind of plug that hole.
02:04 And they didn't do a great job of communicating why they were raising that money.
02:09 And it started to get people sort of worried.
02:12 One sort of very pivotal moment was when the CEO of Silicon Valley Bank, Greg Becker, told people, "Don't panic. Stay calm. Don't panic."
02:22 The moment he said that, people started to panic.
02:26 And because it's such a small, tight-knit community, everyone descended on this bank and said, "We want our money back."
02:34 I mean, obviously, we've had bank runs as long as we've had banks.
02:39 The way a bank works is they don't have all of the money in cash sitting in a vault.
02:43 They take in deposits. They lend it out.
02:45 And as long as everyone doesn't come at once and ask for their money, it's fine.
02:50 The thing that was different here was, A, we had a very tight-knit group of people who were all chronically online and constantly tweeting and constantly tweeting at each other.
03:02 And what could have been a bump in the road became sort of a self-fulfilling prophecy.
03:08 And the other thing is we're now in the era of online banking.
03:11 I mean, people could just log into their accounts and say, "I want to pull my 5, 10, 100 million dollars right now."
03:18 So it just created this perfect storm where something that might have played out a little more slowly was happening minute by minute.
03:26 And they suddenly had to come up with tens of billions of dollars that they didn't have.
03:31 A lot of big companies that people might have heard of, you know, Roku, Roblox, Etsy, Vox Media, had their money at this bank.
03:41 And, you know, it really did look for a moment like some of these companies were going to struggle to make payroll, were going to struggle to pay their vendors.
03:48 And that's when the federal government stepped in, said nobody's getting any of their money until we figure all of this out.
03:54 This isn't really a bailout in the traditional sense.
03:58 It's not the case that, you know, the federal government is having to write a big check to make investors whole again.
04:06 The Federal Reserve did step in and create what they call an emergency lending facility to essentially backstop deposits,
04:13 meaning that people who had money at the bank can access that money.
04:17 This is a bank that survived the dot-com bust of 2001.
04:22 This is a bank that survived the 2008 financial crisis.
04:25 They really were a source of a lot of stability and support for the startup community in 2008.
04:31 And so that's why it's so surprising that they were able to survive all these huge crises.
04:37 And then something as simple as a routine capital raise just completely sunk them.
04:45 And so I think it's a moment of, or should be a moment of, a little bit of humility for the venture capital community
04:54 who maybe need to acknowledge that they are not always the smartest people in the room.
