There has been a lot of concern about crypto-friendly Silvergate Bank. Mutterings were first heard when the company explained it would be delaying the filing of its 10-K report. Suspicions were raised further when the reasons for the delay were explained. The hold-up was due to questions from an independent auditor. Now it has all come to a head with the official announcement of Silvergate’s liquidation.
The announcement came from parent company Silvergate Capital Corp, though assurances were also given that the liquidation is being handled professionally. Silvergate Capital revealed that it has enlisted the help of Centerview Partners for financial advice, as well as law firm Cravath, Swaine and Moore LLP.
Silvergate also stressed that all deposits will be repaid in full.
A statement from Silvergate Capital Corp explained the situation further. The statement clarified that due to regulatory and industry developments, the Bank is winding down. The statement also stressed that the liquidation is voluntary and that every measure is being taken to assure the value of assets.
Meanwhile, the California Department of Financial Protection and Innovation (DFPI) is on the case. The state regulator confirmed that it is monitoring the situation closely. DFPI Commissioner Clothilde Hewlett made a statement of her own.
Hewlett declared that her department is watching closely, ensuring that all financial laws are being met. She also emphasised that she is working closely with Federal counterparts on the matter.
Sherrod Brown, the Senate Banking Committee Chairman, also made a statement. Brown did not beat around the bush, saying that the liquidation of Silvergate is an impact ripple from the collapse of FTX. Brown went on to stress that the collapse of FTX is a demonstration of what happens when banking systems become reliant on risk-based sectors.
Brown continued that there has been concern about fiat banks getting involved with crypto, stressing that risky investments easily get spread across broader financial systems. He pointed out that, should fiat banks collapse, it will be the taxpayers that land up carrying the debt. Brown concluded that it is due to these risks that he is working with congress to secure the crypto sphere, thereby keeping it behind safeguards.
Broader impact was felt soon after Silvergate announced that it was being investigated by the Department of Justice. The announcement was followed by crypto clients suspending their involvement with the bank, after which Silvergate’s stock plummeted. Stock prices fell from the previous year’s $115 to a low of $5.72. Signature Bank, another entity that has chosen to be involved with crypto, saw its own stock fall by around 10%.
Silvergate has been providing crypto services to companies since 2013. In the same year the Silvergate Exchange Network, specifically for crypto, was launched. However, it wasn’t long after that the company took out a loan of $4.3 billion from the Federal Home Loan Bank. This, according to an anonymous expert, should have been sign enough that the organisation was collapsing.
Silvergate is the largest banking organisation to have collapsed since 2009.