The holding company for California-based Silvergate Bank announced on Wednesday that it will begin the process of winding down its operations and voluntarily liquidating the bank, ending a long descent for the crypto-focused firm and weeks to speculate about its viability.
With the rise of crypto and the reluctance of traditional banks to work with the volatile sector, Silvergate has established itself as one of the most important partners for the new industry, offering essential financial services in exchange to increase income. By working with leading crypto companies, from Coinbase to FTX, Silvergate’s share price rose more than 1,500% between November 2019 and November 2021.
The bank’s fortunes are tied to the industry, with 90% of its deposit base coming from crypto companies. As the bear market began, Silvergate suffered heavy outflows, including $8.1 billion in digital asset deposits in the fourth quarter of 2022 alone, exacerbated by the November collapse of one of its main clients, FTX.
Last week, Silvergate announced that it was late filing its annual report with the US Securities and Exchange Commission, citing capital issues and uncertainty over its recovery. The delay Flashes an exodus of crypto clients, including Coinbase, Circle, and Paxos.
Rumors surfaced that the Federal Deposit Insurance Corporation would put the bank into receivership and begin looking for a buyer last Friday. A name floating among the crypto industry Wells Fargoalthough a spokesman for Wells Fargo denied the allegation of luck.
Although Silvergate announced on Friday that it would shut down the Silvergate Exchange Network, a 24/7 payment provider for clients, it lasted until the end of the week. On Tuesday, Bloomberg reported that Silvergate talked to FDIC officials to save the bank.
Wednesday’s announcement, however, appears to be the last for Silvergate. By liquidating the bank, it is unclear whether it will find an acquirer for its assets. A press release SAYS that the bank believes that a “good way to improve the Bank’s operations and a voluntary liquidation of the Bank is the best way forward.”
With FDIC banking, all deposits owned by clients – whether individuals or corporations – are insured up to $250,000, although that is not yet a concern for Silvergate. In its press release, the bank said the wind down and liquidation plan will include full payment of all deposits.
Silvergate is first failure of an FDIC-backed bank since 2020 and only the ninth since 2017, although the case differs from that of Silvergate which voluntarily liquidated, rather than going into FDIC receivership.
“As the impact of the FTX collapse continues to spill out, we are now seeing what can happen when a bank over-relies on a risky, volatile sector like cryptocurrencies,” Sen said. Sherrod Brown (D-Ohio), the chairman of the Senate Banking Committee, in a statement. Sen. Elizabeth Warren (D-Mass.) described the failure as “disappointing, but predictable” in a tweetindicates that the bank may be involved in illegal activity.
The California Department of Financial Protection and Innovation, Silvergate’s state regulator, said it was monitoring the situation to facilitate a voluntary liquidation.
A spokesperson for Silvergate said luck that they cannot comment beyond what is already in the public domain.
With the fall of Silvergate, the crypto industry has limited options for banking services. Meanwhile some companies have started to return to being based in New York Signature Bankit has motioned that it will reduce its digital assets business. In the meantime, banking regulators have repeatedly issued guidelines about liquidity risks related to the crypto industry—a warning echoed by the Silvergate disaster.
“There are a lot of problems that banks see, without a lot of reward,” said former adviser to the Federal Reserve Bank of Chicago and Dickinson Wright partner Joseph Silvia. luck in a interviews last week.
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