Podcast Summary:

a16z Podcast | Can Community Banks Survive the Next SVB?
Guests: ModernFi CEO Paolo Bertolotti, Former Comptroller Gene Ludwig
Host: David Haber, a16z General Partner
Date: November 20, 2025

Episode Overview

This episode delves into the existential challenges and opportunities facing community and regional banks in the aftermath of the Silicon Valley Bank (SVB) crisis. The conversation explores how the rapid digital movement of money, technology-enabled runs, and America’s uniquely fragmented banking system intersect to create both vulnerabilities and sources of strength for the U.S. economy. The spotlight is on how deposit networks—pioneered by the likes of Gene Ludwig and modernized by Paolo Bertolotti’s ModernFi—can provide systemic stability by helping smaller banks collaborate rather than compete alone. The discussion also unpacks the “cold start problem” when launching a network with financial institutions, the necessity for cooperative utility models, and the promising path for tech-driven infrastructure in banking.

Key Discussion Points & Insights

1. The SVB Crisis: Technological Tail Risks and Regulatory Gaps

• What happened:

  • SVB collapsed in just 48 hours, not because of bad loans or fraud, but due to “asset liability mismatch” and the unprecedented speed at which depositors could move money online ([02:08]).
  • The internet introduced new tail risks—regulators and the Fed were unprepared for 21st-century bank runs.
  • Quote (Gene Ludwig, 02:08):

    “It is a real example of what we call tail risk…It is a tail risk and unique event because it's the first time that I know of in American banking where the technology itself, that is the Internet and the ability, ability to transfer funds more rapidly conspired together to put that kind of instantaneous pressure on a bank.”

• Regulatory Shortfalls:

  • Regulators didn't act quickly enough; had the Fed widened the discount window earlier, the run might have been averted ([02:50]).
  • President Biden’s public assurance (“your deposits are safe”) slowed the crisis, but systemic vulnerabilities remain ([03:32]).

2. America’s Highly Fragmented Banking System: Historical Roots & Present-Day Importance

• Why so many banks?:

  • Deep historical reasons—founders distrusted centralized British banks and designed a federated system ([06:31]).
  • This diversity enabled credit to flow into varied communities and verticals, fueling innovation and small business.

• Role of Community/Regional Banks:

  • Local banks are nimble, personalized, and essential for small business growth (“credit is the lifeblood of any economy”). Without them, “banking deserts” emerge, impacting entire industries and regions ([09:14]).
  • Quote (Gene Ludwig, 08:00):

    "It's not an accident that Andreessen Horowitz and Canopy and all kinds of venture companies exist in the United States."

3. Aftermath & Ongoing Effects of the SVB Crisis

• Flight to Safety:

  • Post-crisis, there was risk of mass movement of deposits from smaller banks to large, “too big to fail” banks, threatening dynamism ([10:29]).

• Reflections on the Value of Community Banks:

  • SVB’s demise shows what happens when specialized banking for a sector disappears and isn’t easily replaced ([06:00]).

4. The Role and Mechanics of Deposit Networks

• Definition & Value Proposition:

  • Deposit networks allow banks to “reciprocate” excess deposit insurance coverage by pooling and redistributing deposits, assuring clients even with multimillion-dollar balances ([13:19]).
  • Quote (Paolo Bertolotti, 13:19):

    “Our mandate is to provide software infrastructure services to help them [financial institutions] grow, compete and thrive…A deposit network…you can almost think of it as a market for deposits.”

• Reciprocal Deposits:

  • Pioneered by Gene Ludwig in the early 2000s: a mechanism for banks to insure depositors above FDIC limits by spreading funds across participating banks ([13:19], [19:38]).
  • Gene’s Story (19:38, 20:53):
    • Inspired by both a disadvantaged Kansas City bank shut out by fiduciary concerns, and his Aunt Betty, who struggled to keep all her savings insured by going from bank to bank.
    • Created early models, faced technical hurdles, and built the initial network bank by bank.

5. ModernFi’s Mission & Approach

• Modernizing Deposit Networks:

  • ModernFi builds modern, digital deposit networks for both banks and credit unions, integrating seamlessly into online banking for simplicity and adoption ([13:19], [26:16]).
  • Technical Innovation:
    • Brings AI/ML optimization learned from Bertolotti’s academic work to the bank funding problem ([13:19], [17:49]).
    • Tackles the “cold start problem” of getting the initial cohort on board—a notoriously tough challenge in network-effect businesses ([00:00], [42:14]).
    • Quote (Paolo Bertolotti, 00:00, 42:14):

      "Trying to solve the cold start problem in a network effect business with financial institutions has to be the worst idea of all time. But now that we're on the other side, it's worth it."

• Unique Offerings:

  • Built the first reciprocal network for credit unions—letting them serve more member types ([28:19]).
  • Digital-first, deeply integrated in banking tools, and with economics that favor the institutions, not just the intermediary ([30:53]).

6. Barriers to Adoption: Why SVB and Others Didn’t Use Existing Infrastructure

• Underutilization of Available Tools:
  • SVB was a member of a deposit network, but 94% of deposits were uninsured as the tools weren’t deployed ([26:45]).
  • Major causes:
    • Technology: Legacy interfaces and lack of integration into digital banking.
    • Economics: Pricing and terms unfavorable for widespread adoption.
    • Alignment: Previously, these were not cooperative utility models, so banks lacked true ownership or enthusiasm ([31:07]-[32:59]).

7. The Utility Consortium Model: NVID & Industry-Wide Collaboration

• NVID:

  • Built as a “bank-owned, bank-managed consortium” with shared governance, oversight, and revenue sharing ([36:45], [33:27]).
  • Structure aligns incentives: communities of banks co-own the utility, increasing adoption, engagement, and long-term system resilience.

• Regulatory Perspective:

  • NVID is positioned to become a systemically important financial market utility (FMU), akin to giants like DTCC, ICE, or SWIFT ([36:45]).
  • Regulatory approval and trust are built into the design with ex-regulators on board ([34:30]).

8. Lessons for Fintech and Future of Banking Infrastructure

• Three Ingredients for Lasting Impact (Gene Ludwig, 39:59):

  • “To have a really winning technology enterprise, you've got to do three things. You've got to have good technology…it's gotta be well managed…But then the other part of this…ModernFi's figured out, this is about the customer. This is about adding critical value for the customer.”
  • Customer-centricity, sound management, and tech innovation are all required for both fintech and traditional finance.

• Next Steps:

  • Building on the deposit-side network success, the same infra and analytics can serve “the other side of the balance sheet”—loans, new products, etc. ([41:34]).
  • Solving the cold start problem unlocks long-term network effects and new business frontiers.

Notable Quotes & Memorable Moments

• On SVB’s Unique Collapse:

  "It's the first time in American banking where the technology itself... put that kind of instantaneous pressure on a bank and the regulators weren't ready for it."
  —Gene Ludwig ([02:08])

• On Community Banks’ Value:

  "Credit in a lot of ways is the lifeblood of any economy. And it's very easy when these institutions go away...you have what the Fed calls banking deserts.”
  —Paolo Bertolotti ([09:14])

• On Building Network Effects in Banking:

  "Trying to solve the cold start problem in a network effects business with financial institutions has to be the worst idea of all time. But now that we're on the other side, it's worth it."
  —Paolo Bertolotti ([00:00], [42:14])

• On Industry Collaboration:

  “Is there a way we can build a coalition model where the banks have a notion of oversight, ownership, true membership? If you can get that right, that is a very, very powerful vector.”
  —Paolo Bertolotti ([32:29])

• On the Consortium Model and Utility Services:

  “We've created a robust bank board and ownership governance structure and then priced it sensibly so that... it creates the enthusiasm to do what they should be doing, which is basically using this mechanism to insure all their deposits because it's theirs.”
  —Gene Ludwig ([33:27])

Timestamps for Key Segments

• [02:08] — Gene Ludwig explains why SVB failed and its regulatory lessons.
• [06:31] — Gene on American banking history and why so many small banks exist.
• [13:19] — Paolo Bertolotti on how deposit networks work and ModernFi’s mission.
• [19:38] — Gene Ludwig shares the origin of reciprocal deposit networks.
• [26:16] — Paolo discusses bringing reciprocal networks to credit unions and technical challenges.
• [30:53] — Paolo addresses why deposit networks weren’t widely used, with specific reference to SVB.
• [32:29] — Discussion of alignment, digital integration, and building utility models.
• [33:27] — Gene on governance and ownership in NVID.
• [36:45] — Paolo describes the NVID consortium model and industry vision.
• [39:59] — Gene summarizes what makes technology in finance truly succeed.
• [41:34] — David Haber on broader implications for analytics and future opportunities.
• [42:14] — Paolo reflects on overcoming the cold start problem.

Conclusion

This episode provides a deep dive into the structural strengths and threats in America’s banking system post-SVB, the core mechanics and untapped potential of deposit networks, and the case for industry-wide cooperative utilities as critical fintech infrastructure. ModernFi’s vision is to turn old “nice to haves” into systemic must-haves—giving community banks the superpowers to survive and thrive in a world of rapid digital change, while preserving the economic diversity that makes the U.S. unique.

Highly recommended for:

• Fintech founders and investors
• Bank executives and technologists
• Policy makers and regulators
• Anyone interested in how technology and collaboration can future-proof America’s most essential financial institutions