Why did companies, venture capitalists and private equity specialists bank with SVB, often exclusively? Because nearly everyone else did, and thus SVB knew everybody and could often facilitate introductions. The bank was a matchmaker, a connector, and a catalyst, but also a quality filter: a rising rookie company or founder could quickly and informally be vetted through the personal networks of SVB senior managers and executives.
The business model of most banks is to take deposits from those who have money to invest, to lend at a higher interest rate to those who need money, and to pocket the difference. The tech sector started to stall, and public and secondary offerings diminished. Company valuations fell, and the start-up sector struggled to raise new funding rounds. Naturally, those with deposits at SVB began drawing down to cover routine costs such as payroll.
These bonds were perfectly safe but were not in themselves an immediate source of cash. The bonds could of course be sold but only at a loss, because they were low yield as compared to the higher yields available today from current US government bonds. SVB’s chief risk officer, responsible for managing the bank’s exposure and in particular balancing customer cash requirements against the bank’s assets, stepped down in April 2022. She was not replaced until January.