Silvergate Bank

I think when we first started this business, was right off the backs of the FTX collapse.

And I think it was before, it was after Silvergate failed, or whatever happened, whatever you want to call it, Silvergate.

But then Signature, it was in between those periods.

And so the point being is, no, it was definitely before Silvergate because we were onboarding.

It was like Silvergate, Signature, SVB, we just got hit where they were, and customers as well.

kicked off before they could even effectively close down because they were getting these letters from regulators.

And I think the bullish side of this is now we have this administration and legislation in place for banks to start to adopt digital assets.

And so like talking about like narrative catalyst for the adoption wave, like what you would be looking for, it's just like more people becoming aware of things like this.

And I know, But you and I have talked to Alan Lane at length about the saga of Silvergate specifically, and it's absolutely atrocious what happened to them.

Yeah, they're I mean, I don't know the story of signature as well, but the story of of Silvergate specifically is just atrocious because I think anybody that was observing that one as it was happening recognized exactly what was happening.

And then also, yeah, knowing Alan and considering Alan a friend and knowing how principled Alan was, one of the things that I'll just share is that, and I mentioned this, but the first time I met Alan, we had breakfast and we had met talked over the phone a few times before this, but I think it was 2021 at the Miami Bitcoin conference, had breakfast, and I was still at Unchained at the time, and we were talking Bitcoin-backed loans.

I don't know what context it came up, but I remember him very clearly telling me that they'd built Silvergate in such a way that if all of the Bitcoin-related or crypto-related deposits fled and left, that Silvergate would survive, that they'd very intentionally built the business that way.

And that proved to be true, that despite a 60%, 70% bank run that was then effectively finished when all the regulatory overhang came, they wound down not being taken over by the FDIC and basically every depositor got their dollar back and the people who lost were the equity holders, you know, as it has designed to be, but they were, they were a political assassination effectively.

And after that, I had spoken with a friend of mine who was an ex bank regulator and asked him straight up.

It was like bank supervision specifically.

The only back in history... and the only bank that was in existence in 2022 21 22 that could have stomached a bank run the magnitude that they did they had a 70 run on their deposits that were able to they structured their balance sheet in a way to be able to get everybody their cash back and they were doing that and then elizabeth warren and what was his name sec chair gensler gensler like that gary yeah you better shut down yeah

Shout out Jonathan Melton also intimately involved with the ridiculous, ridiculous shutdown of Silvergate and a couple of other banks got caught up in it as well.

It's not over yet.

And, you know, we can take a victory lap.

Nick Carter covered this extensively as it was happening before it really hit.

um a lot of uh Bitcoin entrepreneurs and folks in the broader crypto space experience at first hand um I remember when it was

going down at 10 31 Silvergate went down yeah and then they hit um Barney Frank's Bank what was that uh

signature we were banking with signature I had a I had a couple of entities banking with signature at the time that was not fun

It's like, okay, in theory, you know, that free market dynamic should create opportunity for somebody else.

But, you know, we have Alan Lane, former CEO of Silvergate, coming out to the summit to, you know, talk about his time there.

And he just did, opened up quite a bit on what Bitcoin did and did an episode on his experience.

And, you know, a lot of this is like, Postmortem and understand like by legal decree from the president, which is my understanding, you know, executive orders kind of stop some of these antagonistic practices by the regulators.

Yeah, I don't know.

I do think it was interesting.

Silvergate was allowed to fail, but none of the other ones were, right? Yeah, I mean, and again, this is my opinion, potentially because they were crypto-focused, they kind of were SVB and obviously they were acquired, but again, I guess I think that comes unfortunately based on the the perception of risk, right? And perception of customers.

Yeah.

Now, when you're looking at leverage, even banks, and a good example is Silicon Valley Bank.

So, so when Silvergate went under, Silvergate was a crypto company, and it went under.

They didn't do anything wrong.

So Biden administration said, "If anyone puts any deposits at Silverbank, uh, um, Silvergate," and I forgot the other one w- with the other crypto one that went under, "uh, we are going to audit you and you're done," right? So all the banks said, "We, we can't do business with them anymore.

You're not bringing in deposits." So basically, they were forced, right, to, to shut down because of the government.

Now, when that happened, it triggered this 'cause people and hedge funds who are very, very smart, who again, it's all cutthroat.

CK, you just brought in another name that I think I want to tackle, which is the home loan banks, the other unofficial lender of last resort, if you will.

So the Fed is the technical lender of last resort, but the home loan banks have been playing this role Particularly, I mean, we saw it with Silvergate as an example in the 2023 crisis where they were taking out extraordinary amounts of home loan bank advances.

So where does that role stop? And I will note, CK, you used to work at the FDIC.

The FDIC has very strong opinions on the home loan banks because... because the home loan banks impose or, in fact, stand ahead of insured depositors or depositors at all, uninsured depositors at all, whenever there's an advance.

and regulatory oversight.

We can all sit here and cite instances where a massive imbalance developed and it created a problem down the line.

In this case, we're talking about the homeowner bank, Silvergate.

But again, where were the regulators in that situation? And was that not a warning signal that resulted in them maybe paying an unscheduled exam visit and saying, listen, walk us through the logic here.

I appreciate the opportunity.

Of course, but we should start by, like for any of the audience that don't know who you are, let's go through who you are, your background, and then what happened in the early days at Silvergate.

When did you start with Silvergate? Sure.

So I started at Silvergate in December of 2008.

Little did I know that a couple of months before I started, the Bitcoin white paper had been published.

And a month or so after I started at Silvergate, January 3rd, 2009, but I was fully immersed at Silvergate.

But just to back up a little bit, just to give you a little context.

So I started in banking as a teller while I was in college in 1981.