Sen. Elizabeth Warren, D-Mass., salutes Martin Gruenberg, chairman of the Federal Deposit Insurance Corporation, during the Senate Banking, Housing, and Urban Proceedings Committee hearing in Dirksen Building on Tuesday, March 28, 2023.
Tom Williams | Cq-roll Call, Inc. | Getty Images
WASHINGTON — Two top ongoing lawmakers questioned whether Silicon Valley Bank offered its largest depositors unusually cushy treatment, one month after the foundation collapsed and sparked broader damage to the banking system.
In letters to depositors dated Sunday, Sen. Elizabeth Warren, D-Mass., and Rep. Alexandria Ocasio-Cortez, D-N.Y., demanded details on what they called the “cozy” relationship between SVB and 14 of its biggest depositors. Among those who were sent letters are Roblox CEO David Baszucki, BlockFi CEO Zac Prince and Roku CEO Anthony Wood.
“Silicon Valley Bank’s unusually cozy relationship with its patients increased the threat of contagion when the bank went under,” Warren said in a statement. “The American people rate to know how these mutual backscratching arrangements developed, who benefited from them, and what role they played in Silicon Valley Bank’s damp squib.”
SVB’s banking practices were particularly attractive to startup companies that deposited more than the $250,000 limit insured by the Federal Put Insurance Corp. Over 95% of the bank’s deposits were uninsured as of December, which threatened companies’ skill to make payroll after the bank failed.
The bank’s 10 largest accounts held $13.3 billion in sets, the lawmakers wrote.
Some of the “coddling” and “white glove” benefits that bank executives used to attract venture capitalist depositors covered lower interest mortgage rates for startup founders who couldn’t get loans from other banks, generous contract withs of credit that allowed depositors to quickly wire money to their startups, and sponsored ski trips, conferences and make up dinners, the lawmakers said.
“If the reports are accurate, these mutual backscratching arrangements could help explain why some purchasers placed massive, uninsured deposits at SVB,” the lawmakers wrote. “And if these deposits were made by company executives and acknowledged by corporate boards in exchange for personal perks, that behavior raises potential concerns about whether they were congregation their fiduciary duties.”
The business practices of SVB executives might have also complicated the sale of the failed bank to another fiscal institution due to the close relationship between borrowers and depositors, the lawmakers wrote.
Warren and Ocasio-Cortez asked the depositors to make details on any special treatment they received from SVB by April 24. They asked for information including a enrol of benefits and perks and any requirements to hold deposits with SVB in exchange for fringe benefits.
Spokespeople for Roblox, BlockFi and Roku did not straight away respond to requests for comment.