The full picture of Silicon Valley Bank’s failures has not yet come into focus, but uncommon lending practices contributed to its woes and raise questions about risk management by its executives and board, analysts say.
This led to the unusual securities-related loans dominating Silicon Valley’s portfolio, said Bill Moreland, chief executive of BankRegData, a provider of bank regulatory statistics and analysis.
The loans are almost certainly a part of what Silicon Valley called its “Global Fund Banking” portfolio. According to the bank’s year-end financial statements, some 56% of its total loans fell into this bucket. Included were loans the bank made to private equity and venture capital firms to be repaid by investors in their funds when the firms request more capital from them.
Since Silicon Valley Bank’s assets and deposits peaked in 2022, tech and startup valuations have fallen significantly; even well-financed mature technology companies are laying off thousands in staff as their fortunes flag. This scenario suggests problems with the bank’s venture debt business. Facing the flood of withdrawals from depositors brought another flaw in the bank’s operation to light, Moreland said. Silicon Valley Bank had an uncommonly small cash cushion — only $12 billion, or just 5% of its assets, regulatory filings show. Last Thursday alone, the bank fielded redemptions of more than $40 billion from depositors, California banking authorities said.
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