Silvergate plans to wind down bank ops, liquidate after crypto metldown

Silvergate Capital Corp plans to cease operations and liquidate its bank after the crypto industry downturn undermined the company’s financial strength. Shares broke more than 50 percent.

“In light of recent industry and regulatory developments, Silvergate believes that an orderly winding up of bank operations and a voluntary liquidation of the bank is the best path forward,” the company said in a statement. “The bank’s closure and liquidation plan includes full repayment of all deposits.”

Silvergate collapsed amid an investigation by regulators and a criminal investigation by the Justice Department’s fraud unit into its dealings with crypto giants FTX and Alameda Research. Although no wrongdoing was claimed, the Silvergate crisis deepened as the bank sold assets at a loss and shut down its major payments network, which it called the “heart” of its suite of services for crypto customers. .

“Today we are seeing what can happen when a bank relies on a risky, volatile sector like cryptocurrencies,” Senator Sherrod Brown, chairman of the Senate Banking, Housing and Urban Affairs Committee, said in a statement. “When banks engage with crypto, it spreads risk across the financial system and it will be taxpayers and consumers who pay the price.”

The company told investors on March 1 that it was reviewing whether it would be able to stay in business. This is the first bank failure in the US since 2020, according to the FDIC’s website, which listed four during the first year of the pandemic.

Shares of Silvergate fell to $2.30 in extended New York trading following the announcement. The stock hits $220 in November 2021.

American University law professor Hillary Allen, who testified before Congress on FTX, previously said, “The collapse of the firm could put even more pressure on banks to demonstrate that their dealings with crypto are safe and sound. “

Senator Elizabeth Warren, a critic of Wall Street who has warned of the dangers posed by crypto to the financial system, said Silvergate’s activities were “risky, if not illegal,” and that the firm failed to do its due diligence.

“As the bank of choice for crypto, the failure of Silvergate Bank is disappointing, but predictable,” she said in a tweet. “Now, customers must be made whole and regulators must step up against crypto risk.”

The firm opened for business in 1988 to make loans to industrial clients, and filings show it deals with traditional services such as commercial and residential real estate lending. But in 2013, the La Jolla, California-based company began courting crypto customers.

The idea was to pool non-interest-bearing deposits tied to services for those customers and then channel the money into a conservative portfolio of investments in interest-bearing cash at other banks, short-term securities and loans, as described. which we believe. Generate attractive risk-adjusted returns.


The crypto-focused service enables customers to route their money through the company’s proprietary platform and send digital assets to each other for payment. The network only handled US dollars and Euros; No actual trading of virtual currencies took place on Silvergate’s system.

With its crypto business growing, Silvergate went public in 2019, asking investors to expect an even bigger shift towards crypto in its prospectus. Ultimately the company’s Silvergate exchange network helped attract $11.9 billion in digital assets held as deposits as of September 30.

Three months later, after FTX went bankrupt amid fraud allegations, crypto deposits fled, leaving Silvergate with only $3.8 billion, according to a January 5 statement. FTX was one of its largest clients, and the sudden drop forced Silvergate to sell the securities before they matured at a loss that sapped their capital and liquidity.

The bank’s crisis intensified on 2 March when investors and business partners spooked by fresh revelations of the bank’s difficulties rushed to the exits. Coinbase Global Inc., Galaxy Digital Holdings Ltd., Paxos Trust Company and other crypto firms decided to stop accepting or initiating payments through Silvergate.

In its statement on Wednesday, Silvergate said it is “considering how best to resolve the claims and preserve the residual value of its assets, including its proprietary technology and tax assets.”

Ultimately, said Aaron Klein, a senior fellow at the Brookings Institution who studies financial technology and regulation, the results are not surprising. “Nothing new here,” he said. “Borrowing less and lending longer has been a subject of bank failure for centuries.”

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