Silvergate Capital Corp. is winding down the operations of and liquidating Silvergate Bank following months of financial turmoil, including a $1 billion loss and $8.1 billion in customer withdrawals in the final quarter of 2022.
The bank said it believes the “orderly wind down of Bank operations and a voluntary liquidation of the Bank is the best path forward” for the crypto-centric firm, which has been in financial turmoil since the collapse of crypto exchange FTX, according to a Wednesday press release.
Silvergate plans to repay all deposits and said it’s considering how best to resolve claims and preserve the value of its assets, including its proprietary technology and tax assets, during its wind-down. The wind-down decision was made “in light of recent industry and regulatory developments,” the bank said.
Following a bank run in the fourth quarter, Silvergate leaned on the Federal Home Loan Bank of San Francisco for a $4.3 billion cash injection, which by the end of the quarter made up nearly all of its total assets. Three U.S. senators penned a letter in January to Silvergate CEO Alan Lane, alleging the bank further exposed the traditional banking system to the risks in the crypto market.
The senators also questioned Silvergate’s knowledge of FTX’s alleged misuse of customer funds, noting that the bank’s due diligence and risk management processes “fail[ed] miserably.” FTX and sister company Alameda Research, which allegedly illegally commingled customer funds, had accounts at Silvergate.
One of those senators, Elizabeth Warren, D-MA, tweeted Thursday about Silvergate’s shutdown: “As the bank of choice for crypto, Silvergate Bank's failure is disappointing, but predictable. I warned of Silvergate's risky, if not illegal, activity — and identified severe due diligence failures. Now, customers must be made whole & regulators should step up against crypto risk.”
Senate Banking Committee Chairman Sherrod Brown, D-OH, also chimed in following Silvergate’s news.
"As the impact of FTX’s collapse continues to ripple outward, today we are seeing what can happen when a bank is overreliant on a risky, volatile sector like cryptocurrencies,” Brown said. “I’ve been concerned that when banks get involved with crypto, it spreads risk across the financial system and it will be taxpayers and consumers who pay the price. That’s why I am continuing to work with my colleagues in Congress and financial regulators to establish strong safeguards for our financial system from the risks of crypto.”
Trouble at Silvergate became more apparent March 1, when the bank acknowledged in a regulatory filing that it might be “less than well-capitalized.” Several partners, including Coinbase and Paxos, distanced themselves from the bank, switching their business to other crypto-friendly banks like Signature Bank.
Two days later, the bank shut down its crypto payments-focused Silvergate Exchange Network, which had “all of the major crypto exchanges and more than 1,000 institutional investors” for clients and was a first-of-its-kind at a traditional bank, according to The Motley Fool.
Silvergate said Wednesday that all other deposit-related services remain operational as Silvergate works through its wind-down.
A Silvergate spokesperson told Banking Dive that the bank could not comment beyond what was already publicly available.