Hello and welcome. You are listening to Patrick Boyle on Finance, a podcast exploring ideas from quantitative finance, examining events occurring in markets right now and financial history to see what lessons can be taken away, including interviews with some of the most interesting people in the world of finance. To learn more about the podcast, visit onfinance.org.

Banks don't fail very often and bank runs appear to be mostly a thing of the past. The last

bank failure in the United States happened in 2020 when a small bank in Kansas

with $69 million in deposits failed at a cost to the FDIC of $18 million.

That two-year streak was broken this Wednesday with the failure of the crypto-focused bank

Silvergate, which was a bit bigger. As of year-end 2022, Silvergate's

deposits were over $6 billion, possibly ranking it in the top 50 largest US bank failures

in FDIC history. Silvergate's importance in the recent crypto boom is possibly best described by a now

deleted testimonial from the bank's website. Life as a crypto firm can be divided up into before

Silvergate and after Silvergate. It's hard to overstate how much it revolutionized banking for

blockchain companies. The

testimonial was written by a millennial who still lives in his parents' basement playing

video games and has had some recent run-ins with the law. His name is Sam Bankman

Fried. I'm told they took it down from their website a few months ago because it doesn't

hold the same weight today as it used to. Okay, so let's talk about it. I'm told they took it down from their website a few months ago because it doesn't hold

the same weight today as it used to.

Okay, so let's talk about Silvergate Bank and touch on the general sell-off in bank stocks

that we saw yesterday to understand what went wrong.

If we go back 10 years, Silvergate was a small San Diego-based real estate lender that transformed

itself into the go-to bank for the crypto industry.

So how did this transformation occur?

Well, in 2013, Silver Lake CEO tells the story that he began reading about cryptocurrencies and decided to buy his first

...