Operation Choke Point 2.0: The Fall of Silvergate | Alan Lane

Alan Lane (0:02)

And then all of a sudden, the run accelerated and within a matter of a couple of weeks, it was, you know, I mean, we experienced the biggest bank run in history. We had instances of being debanked ourselves. You know, I'm not going to, you know, throw stones at anybody, but there were counterparties that were trying to distance themselves from us, that we relied on to provide services to our clients. We were not going to be permitted to run a bank focused on the Bitcoin or the crypto market.

Danny Knowles (0:34)

It did become clear very quickly that FTX were not what we said they were going to be. What was happening internally at the bank when you saw that happening?

Let's do it. All right, Alan. I am so excited for the show. We've been talking about doing this for so long.

For anyone that isn't aware of the story, they're about to hear about probably one of the biggest stories in Bitcoin ever, certainly the last five, 10 years. It's not really a story that's been told. I'm very glad you're here.

Alan Lane (1:04)

I appreciate the opportunity.

Danny Knowles (1:06)

Of course. But we should start by, 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?

Alan Lane (1:15)

Sure.

So I started at Silvergate in December of 2008 Little did I know that a couple of months before I started, the Bitcoin whitepaper 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, 45 years ago. So I've done a lot of things, been with a lot of banks over the years, but I also spent several years in the 90s, before most Bitcoiners were born in private industry, in both retail and manufacturing as CFO, CEO. And so had a pretty broad business background. I went into businesses as a turnaround guy in the mid-90s, and got back into banking in the late 90s, initially as a chief financial officer, then as CEO of a community bank, built that bank, sold it, and then did a couple of other things along the way before I found my way to Silvergate in 2008 And when I joined Silvergate, it was the smallest company I had ever worked for. 38 employees, four branches, a little under 300 million in assets. So very tiny niche.

Primarily did commercial real estate lending and purchased residential mortgage loans and had a securities portfolio, but it wasn't the business bank, didn't have really customers that walked in off the street. So it was very small, based in San Diego. But importantly, this was right at the height of the financial crisis in 2008 It was small, clean, and well-capitalized for a small size bank. So it was really well-positioned to take advantage of whatever opportunities were going to come along during the great financial crisis.

Danny Knowles (3:26)

So did you go in there as CEO straight away?

Alan Lane (3:28)

I did.

Danny Knowles (3:29)

Okay. When you joined that bank, obviously very small community bank, what was your plan for growth?

Alan Lane (3:35)

Yeah. So as I mentioned, Silvergate was privately owned.

The chairman and CEO at the time owned, I think he owned 25 percent of the bank. So and he had put together an investor group when he bought control of the bank about eight years earlier. I think it was late 90s when he took control of the bank. And was essentially just running it as a finance company. He had a commercial real estate background, had cut his teeth at Goldman.

But he recognized that in order to really get any value out of this investment that he had made, he was going to have to turn it into more of a community bank with real deposits, core deposits, etc. And so my charge going in there was, let's turn this into a business bank. That's, you know, I've been in business, the banks that I had run previously were more focused on commercial business banking as opposed to commercial real estate. And so we were going to become a business bank. And the challenge at the time was that every other bank in the country that was still standing during that great financial crisis, they were all choking on their real estate exposure. And so all of them had decided too, they wanted to be a business bank. So there we were a really small platform, and we were trying to be a business bank while every other bank in the country was saying, hey, you know, we can't lend against residential. And so we actually pivoted right after I got there and went all in on banking residential mortgages. Now we did that through a mortgage warehouse operation. So we were providing financing to mortgage brokers all over the country, mortgage bankers essentially. And so while everybody else was getting out of real estate, we went all in on it and grew very successfully over the next four or five years. And what we didn't have was deposits. We didn't have a deposit franchise to fund our loan growth.