Noah Coco '26
Managing Editor
On Tuesday, March 12, the LawTech Center hosted Professor Xuan-Thao Nguyen from the University of Washington School of Law to discuss her new book, Silicon Valley Bank: The Rise and Fall of a Community Bank for Tech. The discussion took place almost one year after the Bay Area regional bank failed and entered Federal Deposit Insurance Corporation receivership.[1]
Professor Nguyen began by discussing the origins of her research into Silicon Valley Bank (SVB), which far preceded the bank’s recent troubles. Earlier in her career, when she first started as a summer associate at the law firm Fried Frank, she was assigned to research the question of whether any banks would issue loans collateralized by intellectual property. She discovered a pretty clear answer: with very few exceptions, almost no bank in the country would issue such a loan. One regional bank, however, distinguished itself for integrating these exact loans into their business model. That bank was SVB.
Nguyen described SVB’s origin story as having its own startup character. In the 1970s, its founders–Robert Medeiros, Bill Biggerstaff, and Roger Smith–proposed a novel banking business model for servicing emerging tech startups. They had little capital at the start but managed to secure $10,000 in investments from a network of one hundred professionals ranging from law firm partners and accountants to politicians and venture capitalists. This network was representative of the services that SVB pitched to its customers: a deep and broad network of professionals with knowledge of how startups needed to operate.
SVB’s model was built around providing loans to venture capital (VC)-backed startups strapped for cash between VC funding rounds, a period where more than 50 percent of startups historically had failed. Along the way, they captured the entire startup ecosystem, providing banking services not only to the startups themselves but also to their founders and executives, as well as the VC funds and investors backing them. SVB swiftly established its bona fides both to regulators and customers and quickly came to dominate banking services to the startup community. They continued to expand as the success of their business model was proven time and time again. It grew to become the thirteenth largest bank in the country on the eve of its collapse.
As spectacular as SVB’s rise was, so too was its fall—a “Shakespearean tragedy,” as Professor Nguyen views it. In the two years preceding SVB’s collapse, and while Professor Nguyen was conducting interviews for her research, SVB was a “vibrant and successful” bank. That all changed suddenly.
Professor Nguyen first described the broad contours of the economic mechanisms that precipitated SVB’s demise. Flush with cash from government stimulus programs following the pandemic, VCs channeled excess deposits into SVB. Meanwhile, the startup companies SVB lent to demanded fewer loans. Chasing alternative methods of generating returns to pay their own depositors, SVB dumped their deposits into what were considered to be very safe long-term U.S. Treasury bonds. However, as the Federal Reserve executed the most aggressive rate hikes in its history, the value of those bonds dramatically fell. Fearing the insolvency of the bank’s balance sheets, SVB’s own tech clients triggered a run on deposits, withdrawing $142 billion in less than forty-eight hours.
This economic explanation only describes part of the story, though. Professor Nguyen proceeded by identifying the actors she believes to be most culpable for the demise of SVB: the “tech bros.” As Nguyen sees things, “the tech bros were responsible for killing their own bank.” She believes they were informed by a misunderstanding of the basic operations of banks and driven by a “herd mentality” among VC-backed portfolio companies.
The misunderstanding that Nguyen pointed to was the fact that the losses from the Treasury bonds were minimal compared to the size of the bank’s entire balance sheet. Moreover, these losses were merely “on paper,” that is, they would only be realized if SVB was forced to sell the bonds to meet customer demands for deposits.[2] The assets were very safe, and had SVB held the bonds to maturity they would not have been forced to realize the losses on those assets and perhaps would still be operating today.
More concerning for Professor Nguyen, however, were the “bubbles” within tech circles that amplified the fears of bank collapse through social media and communication networks. SVB’s customer base was concentrated within the relatively small and interconnected VC-backed startup community. Once the narrative of fear gripped that small group of VC backers, it proliferated as these same backers instructed their portfolio companies to withdraw their deposits from SVB. These messages circulated rapidly through social media and other messaging platforms, and the portfolio companies complied. Within forty-eight hours, SVB succumbed to the demand for over $142 billion in deposits, the shortest bank run in this country’s history.
Professor Nguyen made parting recommendations for both the bank operators and tech bros central to SVB’s collapse. To the bankers, she says the lesson to be learned is that social media is a new risk to modern banking that risk managers need to account for. To the tech bros, she recommends humility. Tech founders may develop innovative technological products, but this does not make them sophisticated banking operators. Perhaps with a little humility, they would not have induced the collapse of their own bank.
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cmz4bx@virginia.edu