But Ken Wilcox, the president and chief executive of the $7.5 billion-asset SVB Financial Group, is not most bankers.
"I don't want to be too confident, but we've gotten pretty good in our 25-year history of walking the edge of the cliff without falling off — meaning, lending just about as loose as you reasonably can without losing too much money," Mr. Wilcox, 60, said in an interview. "When somebody starts to do it looser and cheaper, they're going to go over the cliff sooner or later."
The willingness to take risks is all the more striking when you consider his company's Silicon Valley Bank was hit hard by the dot-com bust. But one thing more important in the bank's culture is something Mr. Wilcox brought when he took control in 1999: getting to know clients and their prospects for success.
His approach was to expand Silicon Valley's reach and product offerings while narrowing its focus to four niche industries: technology, life sciences, private equity, and premium wine.
Since 2004 its price-to-book ratio has consistently beaten that of other banks its size, and the gap has increased sharply.
For steering his company through challenging times and emerging with a stronger and more diversified company, American Banker has named Mr. Wilcox one of its three Community Bankers of the Year for 2008.
Founded in 1983 in the southern part of the San Francisco Bay Area, Silicon Valley Bank began by lending to semiconductor chip manufacturers when the venture capital industry was still in its infancy. Today SVB does business with 550 venture capital firms worldwide, providing treasury management, loans, deposits, asset management, and commercial banking services. Various subsidiaries offer valuations and analytics to 11,000 corporate clients and invest directly in venture capital firms through a family of funds.
The company has followed its clients overseas, opening offices in London, Bangalore, Shanghai, Israel, and Mumbai.
Silicon Valley Bank loses 15% to 20% of its customers each year as they get swallowed by larger companies, said Mr. Wilcox, who became the president and CEO of the bank and its parent, then called Silicon Valley Bancshares, in 2001. That churn is a challenge, he said, but it also seems to indicate a competitive edge.
"From the point of view of normal lending, the early-stage market is highly risky, because … [rival banks] don't understand it," he said. "It's not formula-driven lending as much as it is character lending. We really do know everybody. We know not only all the venture firms; we know all the partners in all the venture firms, and most of the CEOs are repeat CEOs. That's a huge investment to know everybody."
Though SVB is still making money, its third-quarter earnings fell 29% from a year earlier, to $27 million. But average loans grew 12.6%, to $4.86 billion, and Mike Descheneaux, its chief financial officer, told investors in October that his company has had "virtually no chargeoffs in 18 years."
Frederick Cannon, chief equity strategist at KBW Inc.'s Keefe, Bruyette & Woods Inc., said Silicon Valley Bank "continues to dominate the niche lending to both start-up technology companies and venture capital firms."
Mr. Wilcox said one reason for its success is an emphasis on employee recognition and identification with the brand. He created a corporate culture based on Maslow's Hierarchy of Needs, a theory proposed by Abraham Maslow in 1943 that outlines five specific areas of fulfillment, where lower-level human needs must be met before higher-level ones can be addressed.
"People like to have positive work experiences with each other," Mr. Wilcox said. "They've got to grow in their jobs and be given new challenges."
He estimates that it takes 65 employees to create a product or deliver a service successfully to a client.
"What we do is a team sport, because every product and service that we deliver, every problem that we solve, is so difficult and complex that it requires a wide variety of people," he said. "We have 55 first languages spoke here; that means people grew up in that many different cultures."
Half of his bank's 1,200 employees in 27 U.S. branches had never worked at a bank before joining Silicon Valley.
For years, an employee who had been a concierge at a Four Seasons Hotel in Boston was the bank's highest revenue generator; he worked in the factoring division.
"The two most important things you can know about a company are its strategy and its culture, and in my view, culture ultimately trumps strategy," Mr. Wilcox said. "What we're delivering in the end is happiness. If you make a client happy, even if the problem is not 100% solved, you've probably got a client that will stay with you."
He grew up in Flint, Mich., where his father taught at the General Motors Institute. His mother spoke German, and he majored in German studies at Oakland University in Rochester, Mich., and went on to earn a Ph.D. in German from Ohio State University.
After teaching the language for two years at the University of North Carolina at Chapel Hill, Mr. Wilcox decided to change careers, because he said he "didn't like being poor."
He applied to Harvard Business School when a friend suggested that banking was similar to academia. (He doesn't agree.) After graduating from Harvard, Mr. Wilcox received job offers from Bank of Boston and Shawmut Bank in Boston. "Somebody at Bank of Boston took me aside in the interview and said, 'You're really going to like it here, because they're all people like us,' " he said. The executive "didn't know that I had grown up poor, and I was so incensed at that that I took … [Shawmut's] lesser offer."
After five years in the technology lending unit at Shawmut and two at Bank of New England, Mr. Wilcox was approached by John Dean, then the CEO of Silicon Valley Bank, who wanted to open a branch in Boston.
In 1990, Mr. Wilcox and three colleagues opened a Silicon Valley branch in Wellesley, Mass., outside Boston's financial district, but near the technology companies they were targeting. "We were the first bankers in Boston not to wear ties," he said. "For the first several months we were using lawn furniture instead of real furniture."
Mr. Wilcox moved to California's Silicon Valley from Boston with his wife and two sons in 1997. "For the first year, my wife and my sons every day told me I had ruined their lives," he joked. "Then they didn't want to go back."
By the time he became the CEO in 2000, the dot-com bubble had started to deflate, so he made several strategic moves to expand the business and prevent clients from going to larger competitors like Bank of America Corp. and Wells Fargo & Co.
"It used to be up, until eight to 10 years ago, that we would do all the heavy lifting … like taking care of a baby," he said. "We'd change all the diapers, and then they'd get big enough that they could walk, and they'd join B of A or Wells Fargo. And why should we do that?"
First his company broadened its product set and began offering a wider array of services to its customers. In 2006, SVB launched a unit, SVB Analytics, that offers third-party valuations and software that helps venture capital firms track their equity ownership.
Then, by winnowing the focus to four categories, the bank allowed employees to work toward the same goals, Mr. Wilcox said. "There is a huge benefit in having everybody in the organization focused on essentially the same target market, because you understand the risk better than you would otherwise, and everybody can contribute to both business development and risk mitigation as a group."
Not all of the bank's targeted markets have panned out.
When it was looking for underserved markets, it started church and independent film lending — two markets that it found were underserved for a reason.
In 2002, SVB bought Alliant Partners, an investment banking unit, for $100 million with the intention of taking clients through initial public offerings and mergers. The unit, renamed SVB Alliant, lost money every year after the purchase and was spun off last year.
The dot-com bust left Silicon Valley Bank with some scars. It had to restate nearly five years of results to adjust its accounting for unexercised stock warrants, which the bank had obtained through loans to start-ups that later went public. In early 2006 it was forced to acknowledge a material weakness in its controls.
Mr. Cannon of KBW credits Mr. Wilcox for scaling back the bank's balance sheet after the tech bubble burst by shifting customer deposits to off-balance-sheet money market funds.
"They got into trouble in the early 1990s, because they had a 25% loan-to-deposit ratio," Mr. Cannon said. "Moving that money off balance sheet meant they didn't have to chase lending in areas that they weren't expert at, and very few banks the size of Silicon Valley Bank have done that."
Mr. Wilcox also pulled his bank out of mortgage lending in 2001 to avoid a repeat of its disastrous foray into real estate in the early 1990s.
"Why should we get distracted by something which we don't really understand and about which we're quite skeptical?" he said. "You don't need an algorithm to tell you that if you lend money to somebody who doesn't have enough money to pay you back, then you're not going to get paid back."
Silicon Valley Bank is "relatively isolated" from the current mortgage crisis, Mr. Wilcox said, but he admits that if a recession is "broad enough and deep enough," then "it would be ridiculous to claim that we will sail right through this."
When asked what worries him the most about the current crisis, he said: "The fear factor. Fear is rampant right now," and the economic crisis could lead to turmoil.
"Civilization depends on mutual trust. If we're not in a position to trust one another, then the social contract just breaks down, and pretty soon you have chaos," he said. "And that's the biggest danger we have right now: that we'll degenerate in the direction of chaos."
