Sen. Elizabeth Warren, D-Mass., greets Martin Gruenberg, chairman of the Federal Deposit Insurance Corporation, through the Senate Banking, Housing, and Urban Affairs Committee hearing in Dirksen Constructing on Tuesday, March 28, 2023.
Tom Williams | Cq-roll Call, Inc. | Getty Images
WASHINGTON — Two top progressive lawmakers questioned whether Silicon Valley Bank offered its largest depositors unusually cushy treatment, one month after the institution 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., sought details on what they called the “cozy” relationship between SVB and 14 of its biggest depositors. Amongst those that 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 clients increased the specter of contagion when the bank went under,” Warren said in a press release. “The American people should know the way these mutual backscratching arrangements developed, who benefited from them, and what role they played in Silicon Valley Bank’s failure.”
SVB’s banking practices were particularly attractive to startup corporations that deposited greater than the $250,000 limit insured by the Federal Deposit Insurance Corp. Over 95% of the bank’s deposits were uninsured as of December, which threatened corporations’ ability to make payroll after the bank failed.
The bank’s 10 largest accounts held $13.3 billion in deposits, the lawmakers wrote.
A few of the “coddling” and “white glove” advantages that bank executives used to draw enterprise capitalist depositors included lower interest mortgage rates for startup founders who couldn’t get loans from other banks, generous lines of credit that allowed depositors to quickly wire money to their startups, and sponsored ski trips, conferences and fancy dinners, the lawmakers said.
“If the reports are accurate, these mutual backscratching arrangements could help explain why some customers placed massive, uninsured deposits at SVB,” the lawmakers wrote. “And if these deposits were made by company executives and allowed by corporate boards in exchange for private perks, that behavior raises potential concerns about whether or not they were meeting their fiduciary duties.”
The business practices of SVB executives may need also complicated the sale of the failed bank to a different financial institution on account of the close relationship between borrowers and depositors, the lawmakers wrote.
Warren and Ocasio-Cortez asked the depositors to offer details on any special treatment they received from SVB by April 24. They asked for information including an inventory of advantages and perks and any requirements to carry deposits with SVB in exchange for fringe advantages.
Spokespeople for Roblox, BlockFi and Roku didn’t immediately reply to requests for comment.