Report: Silicon Valley Bank's Weak Technology Contributed to Its Demise

According to former employees and customers, Silicon Valley Bank had multiple problems — including systemic tech issues — long before the bank’s collapse.

CNBC reports that the recent downfall of Silicon Valley Bank (SVB) has shocked the tech sector. The bank’s swift collapse, culminating in its seizure by the Federal Deposit Insurance Corporation (FDIC), has been attributed to a variety of factors, including the challenging economic climate and an ill-timed investment in mortgage-backed securities.

A worker (center) tells people that the Silicon Valley Bank (SVB) headquarters is closed on March 10, 2023 in Santa Clara, California. (Justin Sullivan/Getty Images)

However, long-time customers and other individuals familiar with SVB’s business practices claim that the bank’s issues go beyond its risk profile and the general business environment. Many contend that SVB’s failure to modernize its technology contributed to its demise.

Breitbart News economy editor John Carney wrote about the collapse of SVB:

The collapse of Silicon Valley Bank was caused by a massive run on the bank, with customers initiating withdrawals of $42 billion this week.

The bank was placed into Federal Deposit Insurance Corp. receivership on Friday after the California Department of Financial Protection and Innovation (DFPI) determined the bank had been rendered insolvent.

Prior to the run on the bank, the bank was in “sound financial condition,” according to the DFPI. Customers withdrew $42 billion, leaving the bank with a negative cash balance of $958 million.

Here’s the summary of what happened from the DFPI’s order taking possession of the bank:

On March 8, 2023, the Bank announced a loss of approximately $1.8 billion from a sale of investments (U.S. treasuries and mortgage-backed securities). On March 8, 2023, the Bank’s holding company announced it was conducting a capital raise. Despite the bank being in sound financial condition prior to March 9, 2023, investors and depositors reacted by initiating withdrawals of $42 billion in deposits from the Bank on March 9, 2023, causing a run on the Bank. As of the close of business on March 9, the bank had a negative cash balance of approximately $958 million. Despite attempts from the Bank, with the assistance of regulators, to transfer collateral from various sources, the Bank did not meet its cash letter with the Federal Reserve. The precipitous deposit withdrawal has caused the Bank to be incapable of paying its obligations as they come due, and the bank is now insolvent.

Prior to its collapse, Silicon Valley Bank was the 16th largest bank by assets in the U.S. Federal Reserve data shows the bank had $209 billion in assets as of December 31, 2022.

Although SVB has long been regarded as one of the best banks for startups, several startup CEOs who bank there have complained to CNBC about the institution’s frequently clumsy, slow, and occasionally terrible user experience. According to one CEO who had millions of dollars stored there, the bank’s system is “the worst in the industry.”

David Selinger, another CEO and the head of the physical security firm Deep Sentinel, claimed that SVB’s response to the coronavirus pandemic was inadequate, especially with regard to the government’s emergency payment protection program (PPP). The program’s loans were created to enable businesses to keep paying employees throughout the economic downturn.

Selinger said that in the past, his firm had attempted to use a number of automated services offered by SVB, but the automated program worked so poorly that his team chose to do everything manually instead, “clawing hand over foot to try to get to PPP funds because the fulfillment didn’t work.”

SVB was also criticized for not updating its technology to meet the needs of contemporary businesses. According to an ex-SVB manager who worked on risk initiatives and asked to remain anonymous, the bank remained technologically sluggish. “The backend of the bank is all bubblegum and wires,” they said. However, SVB remained a haven for startups with an eye for cutting-edge software and products.

The former manager also claimed that one of the bank’s technical errors was implementing biometric authentication on the bank’s mobile banking app. Startup finance executives were left with a “password-based login” to access their funds because building two-factor authentication into the app “was seen as too expensive, complicated to do and not value additive to clients.”

The ex-manager claimed that the lack of technology investment at SVB made risk compliance challenging. According to the former SVB employee, even attempts to improve its internal technology through a partnership with payments juggernaut Stripe failed.

SVB announced a partnership with Stripe to launch a product called Atlas in 2016, “to give entrepreneurs everywhere access to the basic building blocks for starting a global internet business.” Approved founders and executives would receive a U.S. bank account from SVB, a tax ID number, a Stripe account to receive payments, tax guidance services from PwC, legal help from Orrick, Herrington & Sutcliffe “and tools and credits from Amazon Web Services.”

However, the ex-SVB employee said that after the big announcement, “technically SVB wasn’t able to pull it off on our end.”