Narrated by Second Thought
Zachary D. Carter: I think it’s pretty clear, the regulated banks didn’t fail. The deregulated bank just did. It is as close to a clear cut story as you’re ever going to get about whether public policy could have affected an outcome.
Narrator: It took CEO Greg Becker 30 years to build Silicon Valley Bank into a $209 billion enterprise. It took one weekend for it to all fall apart.
[CNBC News Clip]: “Concerns growing over the stability of what was a tech-focused lender in the Valley”
[Sunday Today News Clip]: “Silicon Valley Bank becoming the 2nd largest bank failure in US history.”
Narrator: While the bank has been around for 40 years, in the last 10 years they saw incredible growth, tripling in size just in the last two years. So how did they get so big so quickly?
Their CEO Greg Becker nurtured SVB into an integral part of the tech community by making extremely rich allies in Silicon Valley and lobbying for policies that made more short-term money for the bank –– and for himself.
Greg Becker made sure to cash out— selling $3.6 million in stock just days before the bank collapsed! After the FDIC took over, he sent a farewell message to employees:
[Greg Becker Clip]: “I want to acknowledge how hard the last 48 hours have been on all of you and I care so much about all of you, it really is just..so incredibly difficult.”
Narrator: And then hopped on a plane to Hawaii to hide out in his $3.1 million Maui townhouse.
So who is Greg Becker? How did he court 67% of all tech startups to park their money in this one institution? We talked to financial reporter Zach Carter and tech reporter Ed Ongweso Jr. to find out.
This is The Class Room From More Perfect Union. And today we’re looking at how Silicon Valley Bank’s CEO Got Rich.
A little background. Silicon Valley Bank was THE bank for the tech industry–it was founded in 1983 by two ex-bankers and one Stanford professor over a poker game in an ominous portent of their future gambling problems.
[Simpsons Clip]: “I lost everything.“
Narrator: Greg Becker started at the company in the 1990s as a loan officer at the beginning of the Dot Com boom.
[Dot Com Boom Clip]: “There has never been a better time to be online”
Startups can take years to become profitable, they don’t start out with revenue, and 75% of them fail, so many banks rightly see them as risky clients. SVB wanted to be the place that took those risks.
Edward Ongweso Jr: Under his tenure, he, you know, is emphatic about the idea of making Silicon Valley Bank the heart of Silicon Valley. This is the place where all the deals will flow through. This is the place where all the venture capitalists will put their money. This is the place where people will go if they want to do anything inside of this region.
Narrator: They would give sweetheart deals and extra perks to star clients. Here’s Jason Calacanis, former Dot Com-era blogger-turned venture capitalist and angel investor to Uber and Robinhood:
[Jason Calacanis Clip]: “They’re super nice to me…I was like, I’m buying a new house…I called Silicon Valley Bank. 8 people showed up at my house, they did my mortgage. I was like, is this normal? And they said not exactly, this is private banking. They brought everybody, an army of people, bottles of wine, they were cracking bottles of wine… I love that Silicon Valley Bank.”
Narrator: At the time of its collapse, 67% of all tech start-ups banked with Silicon Valley Bank. During Becker’s first decade in charge, shares grew more than 1,000%, nearly 5 times the S&P 500’s gain during that decade. Why?
Zachary D. Carter: It’s directly related to the deregulation law. The SVB bank tripled in size over the last few years after it was deregulated because it was deregulated. This is not a coincidence.
Narrator: Let’s talk about deregulation. After the subprime mortgage bank collapse of 2008, Congress passed the Dodd-Frank Act. Wall Street executives lobbied hard to weaken it. Becker was one of these executives.
[Greg Becker Clip]: “Keeping the threshold where it is, actually would hurt us. Our growth rate, along with the regulations, its been pretty hard for us to deal with.”
Zachary D. Carter: Becker gave the same rationale that every bank executive gives. When they testify before Congress asking for a weaker regulation. They say that they understand their business, they understand their customers, and if Congress gets involved and starts meddling with their affairs, they’re gonna prevent the bank from getting, you know, good loans out to qualified borrowers who need them. And this is a compelling pitch to anyone who has never observed the history of banking. Bankers screw up all the time. The whole business is based on taking on risk. And if you take on risk, uh, eventually somewhere, somebody gets burned.
Narrator: Becker lobbied hard. In the years when he was CEO, SVB PAC gave political contributions to both Democrats and Republicans and Becker personally gave tens of thousands to politicians.
[Senate Hearing, Heidi Heitkamp Clip]: How is it that you have this Dodd-Frank bill that was supposed to deal stop too big to fail and it has become too small to succeed?
Narrator: Greg Becker was also on the board of the Federal Reserve Bank of San Francisco. While the SF Fed may not be as big as say New York’s, this is still pretty insane. We’ve all heard of revolving doors –– but Becker was sitting on the board of the SF Fed at the same time he was lobbying for deregulation.
Zachary D. Carter: It’s not clear how much influence he had over, uh, regulatory decision making. But you would never build this system from the ground up. You, you would never say, oh, it’s a great idea to have big bank CEOs serving on the boards of major federal bank regulators. And so I think pretty clearly, at least for reasons of public trust, if nothing else, you’ve gotta stop having this, this system.
Narrator: In 2018, Trump signed a bill with the help of a Republican-controlled Congress and 17 Democrats that gave SVB and banks like it what they wanted. Zach was a reporter at HuffPost at the time.
Zachary D. Carter: Yeah, I mean, this was one of the most unpleasant reporting experiences of my life. It was very standard for every single Republican in the House and Senate to support deregulating banks for, for any reason….But there were always a few Democrats who were interested in working with the financial sector on some sort of arrangement.
The attitude was sort of like, if, if the Republicans are allowed to be corrupt and stupid as a matter of principle, how come we can’t have just a little bit here and there? Because like ‘2018 is a really tough midterm.’
Narrator: The bill raised the threshold from $50 billion to $250 billion which reduced both oversight and capital requirements for banks like SVB. So SVB was free to take on more and more investors as low interest rates allowed VCs to make more and more risky bets. Deposits leapt 86% in 2021.
[CNBC Clip]: “This, as you guys highlighted many times, is basically your best quarter ever.”
Narrator: The deposit boom meant that SVB was growing faster than it could lend, so it started stashing billions of dollars into long-term treasury bonds. These are typically thought of as extremely safe investments for banks. But the problem is the zero interest rate party came to an end.
Edward Ongweso Jr: So when you have low interest rates, uh, and when it’s relatively easy to borrow money, but you also don’t have many opportunities to get a huge return. Banks and firms are more incentivized to throw money at startups who are saying in 10 years, we’ll create this sci-fi project, in 15 years, we’ll have driverless cars, robot taxis, whatever you want.
Narrator: The Fed started hiking interest rates, meaning that the value of the bonds SVB had invested in began falling. This in itself wouldn’t be catastrophic but the rising interest rates also affected SVB’s depositors, who started withdrawing cash. So pretty soon, the cash they could give to depositors ran out.
On March 8th, Becker announced that they were seeking a capital raise of $2 billion. They had taken a 1.8 billion loss on their bond portfolio and this sent up alarm bells.
[Jason Calanacas Clip]: “I’m watching the smartest people I know on the groupchats actually pulling their money out of certain banks at a really fast pace. I’m like wow I’m actually witnessing a bank run.”
Edward Ongweso Jr: Venture capitalists are herd animals. So having a bunch of them face or hear about your bank having a sudden loss and risking more losses, well, you know, the first thing they’re gonna do is take all their money out the door. And that’s exactly what happened.
Narrator: By the end of the day on Thursday, depositors had pulled $42 billion from the bank – it was a run, in the style of It’s a Wonderful Life.
[‘It’s a Wonderful Life’ Clip]: “I got two thousand dollars.“
Narrator: By Sunday night, the Fed stepped in and promised the tech industry that all depositors would have their money by Monday morning.
So what happens to the man at the center of all of this now? As we noted earlier, Becker made millions of dollars in executive pay and stock sales in the last few years, right up until the collapse. That final $3.6 million stock sale on February 27 was initiated back in January when Becker and others were already aware of an impending crisis.
If we are to deter this kind of risky behavior from happening again, it’s critical that those responsible not be rewarded. SVB and Signature shareholders will be wiped out, but their executives must also be held accountable.
Zachary D. Carter: I think one of the, the worst aspects of the bailouts in 2008 and 2009, it wasn’t really about the bailouts themselves. It was the total lack of interest in investigation or prosecution for wrongdoing at, at the companies that got into trouble. I think that really damaged, uh, the sense of fairness in the US economy, the belief that, uh, you know, the law is there for all of us…
Narrator: We should claw those bonuses back, investigate possible insider trading and other criminal offenses, undo the disastrous 2018 deregulations and ban big bank CEOs from Fed boards.
If we want to prevent a repeat of 2008, we need to make sure that people like Greg Becker are punished, not American working people.
But we want to know what you think. How should Greg Becker be held accountable? How do we keep the bank lobby out of our politics? And don’t forget to like and subscribe for updates and to support more videos like this one.
