Michael Banks stepped down as CEO of SVB Financial Group in April 2023, weeks before the bank's collapse

Michael Banks resigned from his position as Chief Executive Officer of Silicon Valley Bank's parent company, SVB Financial Group, on April 10, 2023. His departure came just ten days before the bank failed on March 10, 2023—though the timeline here matters because Banks had already announced his resignation before the collapse became public. The bank had been under pressure from regulators over its interest rate risk exposure and its concentration of deposits from venture capital-backed startups, a customer base that dried up when venture funding slowed in 2022.

Banks had led SVB since 2015. His resignation was announced as a routine leadership transition, with the board stating it was a planned move. However, the timing—coming as the bank faced mounting losses on its bond portfolio and regulatory scrutiny—raised questions about whether the departure signaled internal awareness of the bank's deteriorating position. Banks did not publicly cite specific reasons for stepping down at that moment.

Key Takeaways

  • Michael Banks resigned as SVB Financial Group CEO on April 10, 2023, before the bank's collapse ten days later.
  • SVB had accumulated over $15 billion in unrealized losses on its bond portfolio due to rising interest rates, a problem Banks' leadership did not adequately hedge.
  • The bank's customer base—venture capital firms and their portfolio companies—withdrew deposits rapidly when venture funding dried up in late 2022 and early 2023.
  • Regulators had flagged interest rate risk as a concern in examinations before Banks' resignation, though the full scope of the crisis was not public until after his departure.

The bond portfolio problem Banks inherited and did not solve

When interest rates were near zero in 2020 and 2021, SVB invested heavily in long-term government bonds and mortgage-backed securities. These bonds paid low yields but seemed safe. As the Federal Reserve raised rates throughout 2022, the value of those bonds fell sharply—a standard market move, but one that created a paper loss of over $15 billion by early 2023. Banks' leadership did not sell these bonds or hedge the losses, betting instead that rates would stabilize and the bank could hold them to maturity.

This strategy worked as long as deposits stayed stable. But it failed the moment depositors needed their money. When venture capital funding slowed in late 2022, startups began drawing down their cash reserves. Venture firms themselves faced pressure to return capital to their investors. Both groups pulled deposits from SVB at accelerating rates in early 2023. The bank faced a choice: sell bonds at massive losses to cover withdrawals, or raise new capital. Banks' leadership chose neither quickly enough.

Venture capital concentration created a single point of failure

SVB's business model depended on a specific customer: venture-backed startups and the venture capital firms that funded them. By 2023, roughly 40 percent of the bank's deposits came from this sector. This concentration was not a secret—it was SVB's strategy. The bank marketed itself as the lender to Silicon Valley and offered favorable terms to venture firms and their portfolio companies.

The problem emerged when venture funding collapsed. In 2021 and early 2022, venture capital was abundant and startups were raising large rounds. By late 2022, the venture market had frozen. Startups that had raised $50 million in Series B funding suddenly needed to stretch that cash for two years instead of one. They began withdrawing deposits. Venture firms, facing their own pressure to return capital, did the same. Banks' leadership had built a bank dependent on a single industry's health, and that industry entered a downturn just as interest rates rose.

Regulatory warnings about interest rate risk

The Federal Reserve and the California Department of Financial Protection and Innovation had examined SVB multiple times in the years before the collapse. In their examinations, regulators flagged the bank's exposure to interest rate risk—the danger that rising rates would erode the value of its bond portfolio. These warnings were not secret; they appeared in regulatory filings and examination reports that the bank was required to disclose.

Banks' leadership acknowledged the risk in public statements and filings but did not take aggressive steps to reduce it. The bank did not sell bonds to lock in losses early, did not significantly reduce its reliance on venture capital deposits, and did not raise additional capital to build a buffer. Instead, the bank continued to operate under the assumption that rates would not rise as far or as fast as they did, or that deposits would remain stable even if they did.

The timing of Banks' resignation relative to the crisis

Banks announced his resignation on April 10, 2023. SVB failed on March 10, 2023—but that date refers to when regulators closed the bank and seized its assets. The crisis itself unfolded over the preceding week. On March 8, 2023, SVB announced it had sold $21 billion in securities at a loss and would raise $2.25 billion in new capital. Depositors panicked. By March 10, the bank had experienced a bank run—customers withdrew so much money so quickly that the bank could not meet the demand.

Banks' resignation came after the collapse was already public and the bank was already in receivership. This means his departure was not a warning sign that preceded the crisis; it was a consequence of it. However, the board's decision to accept his resignation rather than ask him to stay and manage the aftermath suggested the bank's leadership had lost confidence in his ability to navigate the situation.

What happened to SVB's leadership after the collapse

After SVB failed, the bank's board of directors faced intense scrutiny. Several board members had conflicts of interest—some were venture capitalists whose firms had deposits at the bank, creating a situation where board members benefited from the bank's growth even as it took on excessive risk. The board did not have a chair with significant banking or risk management experience during the period when interest rate risk was building.

Banks himself faced criticism from venture capitalists and startup founders who had lost deposits, though the Federal Deposit Insurance Corporation (FDIC) ultimately protected all deposits regardless of the insurance limit. Shareholders lost their investment. No criminal charges were filed against Banks or other executives, though the collapse prompted calls for stricter regulation of mid-sized banks and their interest rate risk management.

Frequently Asked Questions

Did Michael Banks know SVB would collapse when he resigned?

Banks resigned after the collapse was already public, so he was not resigning to avoid the crisis. However, whether he anticipated the bank's failure before his resignation announcement is not clear from public statements. The board's acceptance of his resignation suggests they had lost confidence in his leadership, but this does not necessarily mean Banks himself predicted the specific timing of the collapse.

Could SVB have survived if Banks had stayed?

No. The bank's failure was driven by the combination of a massive unrealized loss on its bond portfolio and a sudden, severe deposit outflow. These were structural problems that no single leader could have reversed in the days before the collapse. The bank would have needed to address interest rate risk months or years earlier to prevent the crisis.

Was SVB's collapse Banks' fault?

Banks was the CEO during the period when the bank accumulated its bond portfolio and became dependent on venture capital deposits. His leadership made the strategic choices that created the conditions for the collapse. However, the board of directors, the bank's risk management function, and regulators all shared responsibility for not catching and correcting the problem sooner.

What did the FDIC do after SVB failed?

The FDIC seized SVB's assets and protected all deposits, even those above the standard $250,000 insurance limit. This decision was controversial because it meant taxpayers bore the cost of protecting uninsured deposits, but it prevented a broader banking crisis by reassuring depositors at other banks that their money was safe.