SVB’s tech failings were a problem long before the bank run that led to its demise, critics say

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  • SVB’s problems go beyond its risk profile and a challenging economy.
  • SVB’s outdated technology and the behavior of some startups have made doing business with the bank difficult, say an ex-manager and several customers.
  • David Selinger, CEO of security company Deep Sentinel, said SVB botched its response to the COVID pandemic after the government began paying off emergency PPP loans.

Silicon Valley Bank The historic slump last week was largely attributed to deteriorating business conditions in the firm’s concentrated client base and a mistimed decision to invest billions of dollars in mortgage-backed securities.

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But longtime customers and others with intimate knowledge of SVB’s operations say the bank did itself no favors. SVB’s problems go beyond its risk profile and a challenging economy, between the bank’s refusal to upgrade its technology to meet the demands of modern-day businesses and its treatment of too many startup clients.

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An ex-SVB manager who worked on risk initiatives and asked not to be identified said the bank remained technologically stable, even as it was a haven for startups with an eye for cutting-edge software and products. As he described it, “the backend of the bank is all bubblegum and strings.”

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Three startup CEOs who bank with SVB agreed, telling CNBC that the user experience was often awkward and sometimes slow to serve requests.

David Salinger, CEO of the physical security company dark sentinel, told CNBC that after the government launched the Emergency Payment Protection Program (PPP), SVB botched its response to the COVID pandemic. Loans from the program were designed to allow companies to continue paying employees during the economic shutdown.

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“It was a complete failure in the midst of all these companies needing to get their PPP funds,” said Salinger, who spent much of Friday trying to get the assets out of SVB.

Salinger, a former Amazon The executive who endorsed Jeff Bezos for Deep Sentinel said that his company had tried to use various automated services provided by SVB, but “all by hand” to try to obtain PPP funds. Had to do something manually because fulfillment didn’t work.”

“I love SVB, but it was terrible for our business,” he said. “They wrote some code to try to make it faster and none of it worked.”

One CEO, who had millions of dollars in SVB and asked for anonymity, described the bank’s system as terrible, slow and “the worst in the industry”. He said that the tech looks like it was made in 2002.

In April 2020, TechCrunch reported On complaints from other SVB customers that the bank mishandled the PPP process.

CNBC sent an email to SVB’s press address requesting a comment for this story but have not yet received a response.

SVB’s rapid decline began late Wednesday, when the bank told investors it sold $21 billion in securities at a loss of $1.8 billion and was seeking to raise additional capital amid a decline in deposits. By Thursday, as stocks were falling and venture firms were asking portfolio companies to pull their money, Twitter lit up with people offering advice and pleas.

Some SVB defenders told their followers that they needed to band together and support the 40-year-old bank, which has long been a center of the tech ecosystem. Robert McLaws, a startup founder, responded to one particular tweet and offered a very different perspective.

“As one @SVB_Financial CEO McLaws wrote, “Customer for the last 5 years, they are awesome as a real bank and they are getting what they deserve.” You are not in SV you are invisible.”

Willy Ilchev, partner at Two Sigma Ventures and author of the original tweet, replied, “I’ve had the opposite experience. I’ve loved every conversation with him.”

Another founder and CEO, who is based in Los Angeles, told CNBC that he left the bank nearly a year ago after it took six weeks and five phone calls to transfer the funds needed to open the company’s main office. Thought. He has $750,000 in SVB, which is three times the amount insured by the Federal Deposit Insurance Corporation.

The FDIC seized SVB on Friday after depositors ran on the bank. It was the second largest bank failure in US history and the largest since the financial crisis 15 years earlier.

Banking regulators on Sunday laid out a plan to boost deposits at SVB as they try to ease panic looming over the firm. The central bank said it is creating a new bank term funding program aimed at protecting institutions affected by the failure of the SVBs. In addition, the regulator said that depositors at both SVB and Signature Bank in New York will have full access to their deposits.

Roughly 95% of SVB’s deposits are uninsured, which makes the bank particularly unique as it primarily serves businesses. However, shares of other regional banks declined on Friday due to the risk of contagion. first republic and PacWest Bancorp.

lack of mobile security

The former SVB manager, who was appointed to prepare the bank for a rapidly expanding asset base, said the implementation of biometric authentication on the bank’s mobile banking app was one of its technical failures. Startup finance executives were left with “password-based logins” to protect their funds, as building authentication into the app was “too expensive, complicated to do and not additive to customers,” the person said.

Even an attempt to strengthen its internal technology through a partnership with payments giant Stripe failed, according to a former SVB employee.

In 2016, SVB announced Tie up with Stripe to launch a product called Atlas “to provide entrepreneurs everywhere access to the basic building blocks for launching global Internet businesses.” Approved founders and executives get a tax ID number, a US bank account from SVB, a Stripe account to receive payments from anywhere, and services like tax guidance from PwC, legal help from Orrick, Harrington & Sutcliffe, and tools from Amazon Web and Credits will be received. Services.”

But an ex-SVB employee said after the big announcement “technically SVB was not able to complete it on our behalf.” The person said SVB’s lack of investment in technology has made risk compliance work difficult.

Atlas works with fintech companies Mercury and Novo, according to its website.

Stripe did not immediately comment for this story.

While SVB was “undoubtedly one of the best banks” for startups, Person continued, as customers grew they were “forced to switch” due to the bank’s shoddy technology.

– Ashley Capute of CNBC

Watch: Silvergate Capital shares tumble after announcing plans to liquidate its crypto bank

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