Bank Runs! What's Going On?
Source: YouTube · Patrick Boyle · published Mar 10, 2023 · 25:28
Silvergate Bank, the crypto-focused institution that revolutionized banking for blockchain companies, recently failed due to contagion from the crypto crash and rising interest rates 0:18-0:24.
Key Takeaways:
• Silvergate transformed from a small real estate lender to crypto's go-to bank after its CEO discovered Bitcoin in 2013 1:29-1:35
• The bank created the Silvergate Exchange Network enabling 24/7 dollar movement between crypto participants 8:55-9:06
• The FTX collapse triggered a bank run as crypto firms withdrew $8+ billion in deposits 12:13-12:20
• Rising interest rates caused $1 billion+ in losses when Silvergate was forced to sell bonds at depressed values 15:00-15:05
• These losses pushed the bank below "well-capitalized" thresholds, leading to its voluntary liquidation 17:51-18:12
Silvergate's failure demonstrates how concentration in volatile industries and inadequate risk management can undermine even specialized banks 23:40-24:01.
Sources:
- 0:18-0:24 Silvergate's failure breaking the no-bank-failure streak
- 1:29-1:35 Silvergate's transformation to crypto bank
- 8:55-9:06 Silvergate Exchange Network creation
- 12:13-12:20 Bank run triggered by FTX collapse
- 15:00-15:05 Bond portfolio losses
- 17:51-18:12 Capital position deterioration
- 23:40-24:01(https://
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First 800 characters of the transcript
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 dollars in deposits failed
at a cost to the FDIC of 18 million dollars. 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 $6bn, 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…