Built a brilliant flywheel: force startups to deposit all cash at SVB when taking loans. This gave them collateral, transaction insight, and network effects. By 2011, over half of all VC-backed tech startups banked with them.
What Changed
COVID money printing flooded Silicon Valley. Deposits grew 271% in two years. SVB parked $80B in low-yield government bonds at 1.79%. When the Fed raised rates to 4.5%, those bonds tanked. Meanwhile, they had no chief risk officer for eight months and removed interest rate hedges.
Where it Landed
Chapter 11 bankruptcy. Assets sold at fire-sale discount to First Citizens Bank. $40B withdrawn in one day. Greg Becker sold $3.6M in stock weeks before, then bought a $3M Hawaii vacation home.
The Principles
1.
Concentration risk is existential. When 94% of depositors are uninsured and networked in group chats, a bank run moves at digital speed.
2.
Playing with other people's chips breeds recklessness. Management took wild interest rate bets they'd never take with their own capital — classic principal-agent problem.
3.
Regulatory relief can backfire catastrophically. SVB lobbied to relax stress tests in 2018. Those tests would have flagged the exact time bomb that killed them.
Builder's Takeaway
3 warning signs your risk management is theater:
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Key risk roles stay vacant while exposure multiplies
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You're removing hedges during the best times, not adding them
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Client concentration above 90% in one networked community
