1, improper risk management
Before the financial crisis in 2008, Silicon Valley banks had been focusing on venture capital and commercial loans. This high-risk strategy did not perform well during the financial crisis. Banks made mistakes in risk management and failed to correctly assess the credit risk and asset quality of borrowers, which led to the deterioration of asset quality and the increase of non-performing loans.
2. Overexpansion
Before the financial crisis, Silicon Valley Bank expanded and opened several branches nationwide. However, this expansion strategy has led to high cost and excessive financial pressure, and banks have failed to maintain a good financial situation.
3. Unconventional business model
Silicon Valley Bank has adopted an unconventional business model, that is, investing customers' deposits in high-risk investments such as venture capital and private equity funds. This model did not perform well during the financial crisis, which caused banks to face serious liquidity problems.
4. Regulatory issues
In 2005, the Federal Deposit Insurance Corporation (FDIC) asked Silicon Valley banks to improve their risk management and internal control. However, banks failed to improve these aspects properly, which led to stricter supervision by regulators.
5. Global economic recession
The global financial crisis in 2008 led to the global economic recession, which worsened the asset quality of Silicon Valley banks and increased non-performing loans. Banks failed to cope with this change in the economic environment, which led to bankruptcy.