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In full transparency, the following is a media release from Sen. Elizabeth Warren’s office. She was elected by voters in the Commonwealth of Massachusetts to serve the state in Washington DC in the US Senate. She is a Democrat. (stock photo). SOURCE publishes press release from elected leaders as a community service.

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WASHINGTON DC – U.S. Senator Elizabeth Warren (D-Mass.) and Representative Alexandria Ocasio-Cortez (D-N.Y.) sent a letter to 14 of the largest depositors at Silicon Valley Bank (SVB), raising questions about reports of the failed bank’s “coddling” and “white glove” treatment of its largest venture capitalist (VC) depositors, their executives, and startup firms, and those firms’ decision to hold huge, uninsured accounts at the bank.

Bank branches were located in California and in Massachusetts.

“Silicon Valley Bank’s unusually cozy relationship with its clients increased the threat of contagion when the bank went under,” said Senator Elizabeth Warren. “The American people deserve to know how these mutual backscratching arrangements developed, who benefitted from them, and what role they played in Silicon Valley Bank’s failure.”

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“These large balances meant that the vast majority of SVB’s deposits were uninsured by the Federal Deposit Insurance Corporation (FDIC), increasing the threat of systemic contagion if regulators had failed to step in to guarantee all accounts,” wrote the lawmakers. “Congress, bank regulators, and the public are owed an explanation for the bank’s hyper-reliance on tech industry firms and investors, the extent to which this resulted in an abnormally high percentage of deposits that were not insured by FDIC, and the role that companies like yours might have played in precipitating the $42 billion single-day-run on SVB.” 

Before its collapse in March, SVB catered almost exclusively to the tech industry – banking nearly half of all venture-backed startups in the country and allowing its ten largest accounts at the bank to hold an astonishing $13.3 billion. According to reports, SVB also began engaging in mutual backscratching arrangements with these VCs, throwing in perks and catering to their every need in order to amass “huge unsecured sources of short-term funding.”

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“SVB directly invested in startups and venture funds, ‘provid(ed) lower-interest-rate mortgages for [tech start-up] founders whom other banks wouldn’t lend to,’ gave VC firms lines of credit that allowed them to wire money to their tech startups faster, and sponsored industry ski trips, conferences, and fancy dinners,” wrote the lawmakers.

The lawmakers wrote to 14 different depositors including, Circle Internet Financial, BILL Holdings, BlockFi, Eiger Biopharmaceuticals, Gingko Bioworks, iRhythm, LendingClub, Oncorus, Payoneer, Protagonist Therapeutics, Roblox, Rocket Lab USA, Roku, and Sangamo Therapeutics.

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“If these deposits were made by company executives and allowed by corporate boards in exchange for personal perks, that behavior raises potential concerns about whether they were meeting their fiduciary duties,” concluded the lawmakers. “According to an FDIC official, the mutually beneficial relationship between SVB and the VC and tech industry may have also undermined regulators’ efforts to sell SVB following its failure, as ‘banks had little time that weekend to get comfortable with SVB’s books, particularly when its borrowers and depositors were so closely intertwined.’”

To better understand this dynamic that resulted in favorable treatment for VCs and startups, and massive, uninsured deposits into SVB, the lawmakers are asking for a response to their questions no later than April 24, 2023.

Read the text of the Letter here.

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By editor

Susan Petroni is the former editor for SOURCE. She is the founder of the former news site, which as of May 1, 2023, is now a self-publishing community bulletin board. The website no longer has a journalist but a webmaster.